After experiencing rapid growth in the 1990s, with room for "mom and pop" as well as corporate operations, the assisted living industry is at a crossroads. Growing market preference for upscale facilities and chains, escalating costs, increased regulations, overcapacity in some areas, and other factors are putting pressure on many smaller companies and facilities that are finding it difficult to compete. Even owners of small companies and facilities that remain profitable may decide to get out of the business rather than face such pressures.

Luckily, if you own a small assisted living company or facility, choose not to compete in a changed environment and want to sell your business, you'll find that now is still a good time to do so. The keys to maximizing profits from a sale are to understand the industry, your local market and your company's strategic value to a potential buyer and to have appropriate professionals at your side throughout the sale process.

A Changing Industry
The number and character of assisted living facilities has changed a great deal since the 1960s. There are now 30,000-40,000 facilities, according to the National Institute of Aging (or 11,500, according to the U.S. Office on Disability, which does not count small, unlicensed facilities). The original model of small, homelike facilities serving fewer than a dozen residents has largely given way to a more institutional, resortlike model with bells and whistles like pools and concierge service. Upscale offerings were the success story of the mid- to late-1990s, with the market and investors flocking to them in droves. It's expected that Baby Boomers who retire in the 2000s will prefer this model as well.

The days of small, private companies and facilities offering personalized care are not completely past. But it will become more difficult for the smaller companies and facilities to compete for residents and keep costs under control. They'll need capital if they want to add services like those of the big companies, and they'll be hard pressed to compete with larger multi-chain facilities that can leverage economies of scale to control costs. (The latter now represent 40 percent of all assisted living facilities, according to the Assisted Living Federation.)

Many smaller companies also will be less able to adapt to a changing regulatory environment and/or the need to care for more gravely ill residents. More regulation of the assisted living industry is highly likely in the 2000s, and more regulations usually add up to more costs for facility owners. And as the average age of assisted living residents has leapt from the 70s to the 80s, a greater number of residents have health problems requiring more expensive care. Already, more than 90 percent of facilities offer nursing services now versus 75 percent in 1996 and 67 percent in 1995, according to National Center for Assisted Living data. More also are offering medication distribution and administration.