By nearly all accounts, M&A activity has significantly slowed, as we just recorded our first sub-100-deal quarter in Q1:23 since the first quarter of 2021. However, a mini deal surge in the first two weeks of April has caught us a little off guard. In that time period, we have recorded 27 publicly announced deals, which is just one deal off of the entire month of February’s 28 transactions and a handful away from March’s 31 transactions, according to LevinPro LTC. In addition, the 27 deals have comprised approximately 70 properties. Skilled nursing deals accounted for 41% of the deals from the two-week period, but SNFs were the majority of properties sold, or 53%. Those ratios closely followed the last couple of quarters, as well.
What has gotten into buyers and sellers? It is true that there is always an end-of-quarter rush to close a few transactions. But the Fed’s latest interest rate hike on March 22 could have also influenced dealmaking in the last few weeks, as it was a clear signal that interest rates would probably not come down at all in 2023, or perhaps not in early 2024.
For property owners holding out hope that interest rates would decline sooner rather than later (and cap rates, as a result), they now had to decide whether to sell now at a higher cap rate or endure a costly waiting period before selling in a couple of years. Not everyone has the option to wait, and that decision would have to be made on a deal by deal and property by property basis. But a number of sellers that were already close to the end of the deal process must have chosen to execute on the deal before the capital markets environment worsened even further and before the buyer had more reason to renegotiate on the purchase price. We will have to see if this reasoning generates a spring surge in dealmaking before a potential summer slump.
