In 2010, ACTS Retirement-Life Communities completed a mutually beneficial affiliation agreement with Peninsula United Methodist Homes (PUMH) and Heron Point of Chestertown, Md. But what does it mean to “affiliate”? Unlike mergers where two or more companies become one, affiliation allows the companies involved the best of both worlds-the affiliate retains its identity under a larger umbrella and the parent company strengthens its reputation and bottom line through growth. Through affiliation, residents also reap the benefits of this stronger entity.
PUMH had a new project in development and was looking for a financial partner to continue it. “We were provided with a list of potential candidates,” says Robert Supper, formerly with PUMH and currently vice president Mid-Atlantic region, ACTS Retirement Communities. While the partnership did not occur, circumstances changed at PUMH-the CEO was retiring and its board of directors felt that it was an opportune time to explore affiliation opportunities. After a series of discussions with ACTS leadership, the PUMH board aligned its three communities and strongly encouraged its affiliate, Heron Point of Chestertown in Maryland, to align with the ACTS organization. “One of the factors to consider was our debt structure. PUMH had a variable rate debt structure with a letter in credit whose renewal was in question,” explains Supper. “After affiliation, we successfully negotiated an extension, saving over a million dollars in interest.”
“An important distinction between ACTS and others is that we don't use acquisitions just to grow our business,” states Gerald Grant, executive vice president and CFO, ACTS Retirement-Life Communities. “Our growth is predicated on whether the affiliation enhances the services offered to seniors and is with an organization that is mission-compatible,” he adds.
The fit was right and both PUMH and Heron Point chose to become ACTS affiliates in May 2010.
GOVERNANCE AND MANAGEMENT
“While affiliates remain a separate legal entity, ACTS assumed the governance and management of these organizations,” says Grant. Because of each affiliate's mission compatibility, it ascribes to the rules, regulations, values and goals of ACTS, who, as the sole corporate member, appoints new boards of directors to each affiliated community.
Supper explains that although PUMH and others remain separate companies, licenses had to be amended because of the change of the controlling company. Now the stage was set for ACTS, PUMH and Heron Point to institute the changes that benefit all interested parties, most importantly the residents.
BENEFITS ACROSS THE BOARD
Each community under the ACTS umbrella pays management and marketing fees for the organization to take over these functions for each community. “Because ACTS takes over these operations, each community saves significant money by not individually bearing these overhead expenses,” says Grant. Corporate management of operations allowed PUMH and Heron Point to disassemble their corporate structures. No longer did each facility need an administrative framework to perform back-office functions such as accounting, finance and human resources. “ACTS provides all those disciplines now,” says Grant.
Supper adds, “Through our affiliation with ACTS, we have significantly more buying power than the four facilities that were PUMH. In many cases, we use the same vendors or purchase the same materials but now at better price points.”
The contracts of new PUMH residents moving in post-affiliation also changed to ACTS contracts. “We offered our standard product and with that came a favorable change in pricing,” explains Grant. Because of its size and efficiencies, ACTS' resident contracts translated into lower price increases for existing residents than previously paid. Lower prices make for happy residents, families and create marketing success, Grant states.
THE TRANSITION NEARS COMPLETION
“It's been more than a year, and we've transitioned well,” says Supper. “We've made changes in staffing and structure and started reworking all of our contracts with the assistance of our corporate team.” Even in a strengthened financial position, PUMH is still looking at savings opportunities.
Grant sums up the advantages of affiliation: “We've achieved operation efficiencies and savings. Our employees are more secure and have adjusted to new systems and procedures, making our residents the ultimate beneficiaries.”
Long-Term Living 2011 October;60(10):31