Pension funds have exhibited a voracious appetite for asisted-living investments as of late. How voracious? In December, BayBridge Seniors Housing Inc., owned by the Ontario Teachers Pension Plan, agreed to pay $18.75 per share for Amica Mature Lifestyles Inc. — 113 per cent more than the stock’s trading value. The enormous premium seemed like more than enough to clinch the deal, but Amica, which boasts luxury real estate in Vancouver of all places, was well aware of its underpriced stock. It wasn’t going to sell for anything below true value.
LEXPERT: The assisted-living sector hasn’t been a top focus, but the premium paid for this acquisition was so enormous, it made a lot of people sit up and pay attention. BayBridge, backed by the Ontario Teachers’ Pension Plan, offered to pay more than double Amica’s closing price. Let me ask, first of all, what is it that BayBridge saw in Amica that made the company so much more valuable than its market capitalization at the time? Was it a real estate play, a demographic play, or both? And did Amica’s holdings in luxury Vancouver property play into the sizeable premium?
Andrew Oppenheim (Gowling WLG, for Amica): Likely a question best answered by the Baybridge team. That said, from the Amica team’s perspective, there was a very strongly held view that the market was not recognizing the value of the company — and clearly, BayBridge agreed. And let me say, all other parties who participated in the process saw value well in excess of the stock’s trading price. The real estate is very high-quality, in excellent locations and hard to replicate. The demographics are favourable and there was developable excess land which the stock price did not seem to account for.
LEXPERT: Jeff, care to respond? The premium paid made this an awfully big deal to swallow.
Jeffrey Singer (Stikeman Elliott LLP, for BayBridge): Certainly, this was a large transaction for BayBridge, but they are a seasoned management team who were able to bring an expert and practical approach to the negotiation and execution of the transaction.
Oppenheim: There are easily identifiable synergies between BayBridge’s existing portfolio and the Amica assets, and the process itself was designed to create competitive tension that contributed to the premium paid. All these factors helped to justify the price eventually offered.
LEXPERT: The CPP Investment Board has also been making moves into the seniors housing and assisted-living space. Do you see an increasing role for institutional investors in this space, as populations age and urban real estate becomes more scarce? How do the opportunities in the sector match the investment mandates at these pension funds?
Singer: There was and by all accounts continues be a lot of interest in the assisted-living sector, which should come as no surprise given North American demographic trends. The Amica acquisition was one of a number of such deals, occurring just on the heels of the Regal acquisition.
Stuart Olley (Gowling WLG): To the extent the funds’ investment mandates include ownership of long-term income producing assets, seniors housing and assisted living residences likely fit well. In addition, the ability of pension funds to take a very long-term view makes this attractive. It is a capital-intensive business and they have a low cost of capital.
LEXPERT: Do you see further consolidation in this sector?
Oppenheim: The sector is very fragmented, so further consolidation is likely although the availability of large, quality portfolios is more limited, which is another reason the Amica assets were so attractive.
LEXPERT: How many months prior to announcement was it before you got the call from clients on this? And what was your relationship with them? Are you long-time advisors? Recent hires?
Oppenheim: Gowlings was regular counsel to Amica. I was on the board, and had been since the company went public in 1997, so we had a strong relationship with the management and board of Amica. We provided advice regarding process and duties of the board from the spring of 2015, when an unsolicited offer was first received right through to closing.
LEXPERT: Were you well acquainted with the other side’s legal team?
Oppenheim: As it turned out, the core of the Gowlings M&A team on this mandate was well-acquainted with BayBridge’s legal team. Martin Mix, Gord Chmilar and Stuart had all previously been at Stikemans before joining Gowlings, and Stuart and Jeff had worked together on a number of other mandates while partners. This created a higher level of trust which made the final negotiations much smoother.
LEXPERT: Given the huge premium and presumably friendly nature of the deal, were there any remaining sticking points that required negotiation?
Olley: There are always points to negotiate. The size of the break fee, the terms of the “spring” and the conditions precedent to closing were all points of discussion, but our process required bidders to present proposed changes to a template arrangement agreement, which allowed us to consider these points as one of the factors in evaluating the offers. The most serious negotiation was over price, as the board and management really wanted to ensure they were getting best value.
LEXPERT: What was the tone of this deal? Amica’s CEO seemed very supportive, and if everyone was on board, did this make the meetings more casual and friendly? Less tense? Was there a lot of discussion about what the deal would mean, as opposed to hardball negotiation?
Olley: The tone of the deal was professional and polite, and overall co-operative. Meetings were polite and friendly. It was very important to Amica’s CEO and leadership that the company be acquired by a group who had compatible values. Among counsel, the ability to work with old friends in a collaborative fashion on a deal that we knew would be high-profile once announced was a great pleasure.
LEXPERT: Despite the friendly offer, this deal still took three months to close. Was that merely a function of the “going-private” nature of the transaction, and the need to get shareholder approval, or was it more complex than that? Were regulatory approvals required?
Olley: The three months were required by BayBridge to ensure it had appropriate regulatory approvals and approvals from CMHC and various mortgage lenders. We were fortunate on the Amica side because a shareholder meeting had already been called for the year end. So we were able to use this date to obtain shareholder approval for the transaction, therefore saving considerable time.
Singer: One notable feature of the transaction was the speed with which it was completed from the date of announcement, especially so relative to other acquisitions in the sector. Having participated in a number of the public and private transactions in the assisted-living sector over the past years, we were able to bring a lot of efficiency to the transaction.
LEXPERT: Was there any risk at all that this deal might not close?
Olley: There is always some risk to closing, but we assessed the risk as relatively low in this case, given the absence of a financing condition and the quality of purchaser.
LEXPERT: What would you say was the most interesting or memorable aspect of this deal?
Oppenheim: Two elements really stand out. One was the process that the company engaged in to find the most suitable buyer — from deciding who to invite to participate in the process, assessing the relative merits of the proposals received, and then coming to the deal that was ultimately concluded, all while keeping competitive tension among the various bidders to try to ensure the highest price possible for shareholders. The other interesting aspect of this deal was recognizing and navigating our way through the inherent potential conflict between the largest shareholder of the company who was involved in management and its other shareholders. As it turned out, we ultimately got complete alignment between these groups and were able to realize a control premium to everyone’s benefit, but this was not necessarily going to be the case when we commenced the process.
(Click here for a summary and full list of legal advisors on the BayBridge Amica deal)