Des Moines, Iowa-based senior living giant LCS has completed a planned recapitalization.
LCS announced the recap today but did not publicly disclose financial terms. The recap brings Redwood Capital Investments in as a new investor and renews the ownership interests of McCarthy Capital and LCS employee shareholders.
LCS was founded in 1971 and last recapitalized in 2010. At that time, the board planned to recap again within about 10 years, so this transaction makes good on those intentions, LCS President and CEO Joel Nelson told Senior Housing News.
“LCS has positioned itself for the next 50 years of serving seniors — that’s what this is all about,” Nelson told SHN.
LCS is the second-largest senior living operator in the United States, with its Life Care Services portfolio encompassing more than 35,000 units across 135 communities, according to the 2021 rankings from industry association Argentum. The LCS Family of Companies includes various business lines, including a development arm, a management company, group purchasing business, and a real estate private equity enterprise, as well as a nonprofit foundation.
The recap gives Redwood Capital an ownership stake in two of the largest U.S. senior living providers, as the firm acquired Catonsville, Maryland-based Erickson Senior Living in 2010.
LCS and Erickson will operate independently of each other and “maintain their distinct and separate brands,” according to a press release issued by LCS.
Redwood is a diversified holding company with a portfolio of 16 businesses across multiple industries, with a focus on founder-, family- and management-owned companies. The firm acquired Erickson out of bankruptcy. It is the family office of Jim Davis, who co-founded global talent management firm Allegis Group.
Omaha, Nebraska-based McCarthy manages more than $3 billion of capital, and typically targets investments of between $15 million and $75 million. Its portfolio includes medical staffing, an institutional pharmacy serving assisted living and long-term care communities, and a company that provides investment analysis and other tools to corporate real estate investors.
Employee ownership of LCS dates back to founder Fred Weitz’s formation of an employee stock ownership plan (ESOP); when Weitz retired in 1995, employees became eligible to become direct shareholders. All employee shareholders voted to approve the latest recapitalization plan, Nelson said.
By maintaining employee ownership, LCS remains an example that a growing number of senior living providers might start to emulate. Other providers also have made moves to increase employee ownership or profit-sharing, in part to help drive engagement and retention.
The recap will support LCS’ strategy of growing its real estate ownership, strengthen its third-party management and ancillary business lines, and enable investment in “people and growth initiatives” to support services to older adults, according to Monday’s press release.
Like other senior living providers, LCS incurred elevated expenses over the last two years, due to the effects of the Covid-19 pandemic. But the company has continued to execute on its strategic priorities, including by launching its Eversafe 360° program to elevate infection control and wellness; promoting Chris Bird to COO; hiring Welltower (NYSE: WELL) veteran Joe Weisenburger to lead business development; and making a number of personnel moves within LCS Development.
And LCS was able to keep developments moving ahead despite the challenges of the pandemic, Executive Vice President and Managing Director Chuck Murphy said at the recent Senior Housing News BUILD event in Chicago. In one example of this progress, LCS recently opened Clarendale at Clayton, a luxury community developed with Ryan Cos., located in the St. Louis suburb of Clayton.
LCS’ experience, scale and diversification create opportunities for the company in the midst of the current market challenges, and the recap will enable the organization to seize on these, Nelson said.
It’s the “right time to continue to grow,” and the recap “gives us follow-on capital as we look forward to the next 50 years,” he said.
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