BELGIUM’S SPECIALIST IN AGING WELL

M&A story 2005 - 2016

08/01/2016

2

Agenda

• Facts & figures

• M&A path

• Acquisition and integration process

• Organizational evolutions

• Evaluation past 10 years

3

Senior Living Group

• Dominiek Beelen : CFO and administrator since 01/01/2006

• Belgian private company (SA) founded in 2004 by Waterland Private Equity Fund, acquired by Medica 09/2013 and merged with Korian SA 04/2014

• Mission is to take a leading role in the elderly care market as well as in volume as in quality.

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SLG: Facts and Figures

• Second largest NH operator in BE– Facilities: 56

o Flanders (36), Wallonia (10), BRU (9), DG (1)

– Current capacity (active + licenses) :o Beds in NH: ca 6.530 (active + licences)o Assisted living : 610

– Beds in exploitation YE 2015 : 6.545– Work force 2015 avg : ca 2620 FTE– Turnover 2015 (BEGAAP) : 220,5 Mio €

5

SLG: Facts and Figures

WZC Service flats/AW WZC met SFL/AW Greenfield

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Brussels

• Geographical presence

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Snapshot market elderly care• Very fragmented market 3 largest commercial

players solely 15% of commercial market (including part of charity market)

• Nursing homes – N° of beds: 132.538 (2011)– N° of NH: 1.552 -> avg 85 beds/NH– Market shares :

o Public 30%, o charity 36%, o commercial 34%

• Assisted Living• N° of units : 22.000• Market shares :

o Public 40%, o charity 31%, o commercial 29%

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SLG: Growth strategy• Organic growth (approx 20%) :

– Extensions to existing homes– Refurbishments of existing homes– Management of newly built homes, preferably in partnership with a real

estate player– Additional services such as (adult) day care, short stay, service flats

• Acquisitions (approx 80%) :– Large privately owned homes – (Real estate) and operation– High quality housing, services and care– Only regulated nursing homes

• Cooperation public & social profit (1 project to be realized april 2016)– Concession of services– Concession of Public Works (DBFMO)

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SLG: Evolution

• Exponential growth

2005 2006 2007 2008 2009 2010 2011 2012 2013 20142015F0

10

20

30

40

50

60

48

17

2226 27

4245

47 48

56

N° of facilities

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F0

50

100

150

200

250

18.327.3

71.7

91

112.5120.7

166.1182.6

199.8207.3

220.5

Turnover Mio €8,2% FY11-FY15F CAGR

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Snapshot acquisition parameters• Average scale individual targets

– 100 residents– Revenues : 12 mio €– FTE : 40 to 45

o 67% care staffo 33% others

– Accounting/financial follow-up externalized

• Staff :– Social committed – loyal staff– No (material) mgt overhead

o Owners often operationally involved

• Strongly regulated sector (federal >< regional) :– Care financing a.o. based on minimal staffing– Yearly inspections

• synergies mainly purchasing cycle + operational excellence

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Findings throughout M&A phase

• Elderly care market is still in professionalisation modus

• 1st consolidation of the commercial market segment is realized by acquisition of mainly stand-alone nursing homes

No major issues related to a.o. o double mgt functionso Change management / integration processes

• 2nd consolidation flow will appear :– Consolidation of commercial “groups”– PPP-projects

• How will the relatively new commercial organizations react ?

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Financing structure : evolved by leverage ratio + strategical decision related to real estate • First steps in the market financed through secured mortgage from

real estate previous add-on

• Growth plans >< leverage ratio

• End 2006 first Sale and Leaseback structure in elderly care market– Triple net LT lease 27 years– BEGAAP : off balance leasing

• Since 2007 : “Asset light growth”

• 2014 (after merger with Korian) :– Discussions about off balance character IFRS– Alternative LT lease structure

• 2016 : Keep a minimum of real estate in possession ?– Alternatives : bonds … ?

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Financial structuring new add-ons :

• Stand-alone projects mostly real estate + operations :– If target holds real estate and operations in 1 entity : 2

possibilities for S&L-back :o Partial split of the company into an immoco and opco, after 1 year

sale of the immoco as share dealo Alternative : sale of real estate as asset deal (subject to

registration duties – 10% to 12,5%)

– In Flanders most common structure =o Real estate company in a limited liability companyo Operations in a not for profit organisation with a lease agreement

with immoco

• Larger groups : probably operations (real estate already externalized)

o Quid valuation of not for profit organisations ?

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SLG: Acquisition process

Operational and financial integration

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Preliminary due diligence to perform valuation analysis

1

Letter of Intent - comprehensive due diligence checklist

2

Acquisition by SLG3

First question list with basic data

Operational DD Finance and Tax DD Social/HR DD Building/technical/

environmental DD Real Estate valuation Legal DD Insurance DD Focus on quality services and

reputational aspects

Migration to SLG suppliers Integration of KPI reporting

systems Integration of financial

reporting systems

SPA negotiation Bank / Korian financing Closing

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Key elements integration process

• Prepare integration process during due diligence phase :– Define priority list integration processes– Quid key mgt ?– Double functions ?– (major) operational issues ?

• ASAP after closing date organize staff meeting

• Involve local (key) management in integration process

• Do not change just for change :– Can current (IT) systems (temporary) provide necessary information to

mgt reporting dashboard

• Stick to company standards as much as possible

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Integration process SLG

Prior focus on dashboard KPI and financial controlImplement quick wins gain confidence

Closing date Month X+1 Month X+2 Month X+3 Laterx x x x x

Financial integration

KPI-reforecasting procedure

Implement month close processSwitch to std accounting system

SLG --> add-on > june

Implement cash-flow forecastingSwitch to std payroll agency Switch to SLG IT-cloud

Operational integrationSwitch framework agreements

Implement monthly operational report

HR integrationMeet with local (key) management Implement performance appraisals

1 year after acquisition : satisfaction survey

Remediation of major identified operational issuesVerify KATZ scale residents

SLG "causerie"

Implementation internal control procedures

Switch to std accounting system SLG --> add-on < june

Change of signing authority

Standard KPI-dashboard

Implement cash-pooling

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SLG : Organizational structure

SLG

WZC WZCWZC WZC WZCWZC

WZC WZCWZCWZC WZC WZCWZC

WZC WZC WZC WZC WZC WZCWZC

WZC WZC WZC WZC WZC

Decentralized model

Local unity = central

“guided authonomy”

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SLG: Management approach

• Every facility is unique: – Distinct resident profile, culture and care approach

• Decentralized management– By professionals with relevant experience– Local operational responsibility

o HR, administration & invoicing, purchase and logistics– Local budget responsibility BUT reporting standards:

o Monthly KPI & MIP reporting (financial and operational) + monthly closing & reforecasting

o Monthly formal management meeting for each facility– Decentralized, regional financial hubs

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SLG: Management approachOn group level• Strategical decisions (financing, acquisitions, insurances,

organisation)• Check and guide operational / administrative / financial procedures• Define financial reporting model and standardized templates• Internal audits (operational / financial)• Economies of scale (framework agreements suppliers / construction

and maintenance teams / operational best practices)• Support of local management by:

– Marketing and Communications– Human Resources– Quality Management– Real Estate Management and Construction– ICT– Hotel Services– Regulatory and Legal Counselling– Contacts public authorities

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SLG: Evolution overhead• Evolution from a “private equity” overhead structure to a

more business continuity model :

• Overhead 2016 : approx 1,5% total number FTE’s

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201605

101520253035404550

48

12 13 15

24 2630

40 42 44

N° overhead

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SLG: Evolution organizational structure• Evolved by “fall and rise”

• At first head-office financially focused• New overhead functions through the years : hospitality,

education, Marketing, Quality, real estate development …• For 2016 further development to a mature organization :

– Central HR manager, sales manager …

• 2005 – 2007 : lean organization with focus on local mgt– CEO/CFO in direct contact with local mgt and local admin– M&A analyst– 1 operational mgr and 1 controller

• 2007 : first “explosion in M&A organisation structure not prepared

05-01-2009 - 21

SLG head-office structure(2008 – 2011)

RVB

CEO

CFO

ICT

Op. Mngr/HRM

Op. Mngr/ Techn Dir

Op. Mngr

Fin Analyst

Controller

BD Mngr

Off. Mngr

RVT

Op. Mngr

Controller

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SLG head-office structure (2011 – 2015)

23Chapitre 01 –

SLG head office structure 2016 onwards

CEO

Business Dévelopment HR

CFOFinances and Adminstration

Real Estate COO

Corporate M & A

Senior Controller

CommunicationHR Assistant

KDVProject Mngt

Assistante Procurement

Legal

Financial Analysis

IT

SR Reg controller Account Controller Controller

Regular Operations

OMA

OMA

OMA

OMA

OMA

OMA Integration

Greenfield

Action Plan

Acquisition Manager

Hotel Service

INAMI

Specialist Regl / INAMI

Social Admin

Dvlpt RH Training

Assistant Acc

Controller

Business development

Marketing and Communication

Sales

Quality

To be recruited

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Evolution of the finance department in the decentralized philosophy• Evolution from locally based accounting & admin to regional

decentralized financial hubs• Local admin more marketing oriented

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Round-up – evaluation past 10 years

• Do not forget to prepare the own organisation for future growth

• Do not loose yourself into details after acquisition :– Focus on the main KPI-drivers and try to get as soon as possible control

over the financial processes/situation– Focus operationally on the main identified issues

• Pay enough attention to change management whilst holding on to the companies business processes

• Do not forget to build a HR climate once the integration is mature

• Intensive acquisition pace keep the company structure “clean” by taking into account fiscal and legal requirements/limitations

Any questions ?