Private Equity Turns Focus to Nursing Homes

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In recent months, the market has lost companies in a wide array of sectors such as biopharmaceuticals and REITs to private equity action. We can now add nursing homes to that list. Monday, The Carlyle Group said its proposed takeover of Manor Care (NYSE: HCR) had been approved. (That day, it also came to light that Carlyle is in talks about possibly acquiring Virgin Media (Nasdaq: NTLI) for more than $11 billion.)

The Manor Care takeover will be an all-cash transaction valued at about $6.3 billion. Holders will receive $67.00 in cash for each share of common stock, a 20% premium to Manor Care's closing price of $55.75 on April 10. The next day, the company announced that it would evaluate strategic alternatives, which means selling or restructuring itself.

This transaction highlights the prospects for long-term care facility stocks in general. Shares of Manor Care had already appreciated 18.7% in 2007 before its announcement about strategic alternatives. The company reported robust earnings for fiscal 2006 in January and strong 2007 Q1 earnings growth in April.

I wouldn't advise Fools to buy into this industry solely on the hopes that one's investment becomes a takeover target, but there are some strong performers still left standing in the industry. One such play is Sunrise Senior Living (NYSE: SRZ), whose stock price has increased 44.6% in the past 52 weeks. On a comparable basis, the company's average daily unit rate increased 6.6% over the prior-year first quarter. Its occupancy rate is especially strong at 93%.

Another one to consider is Brookdale Senior Living (NYSE: BKD). Although the company's stock price has been relatively flat over the past year, there is a 4.4% dividend, and Brookdale recently reported an 11.1% increase in Q1 facility operating income, with occupancy hovering close to 91%.

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Fool contributor Billy Fisher does not own any shares of the companies mentioned. The Fool has a disclosure policy.