Turnaround deals and CIBC’s support for client growth

There are a limited number of licensed skilled nursing facilities in the United States, but the demand of mergers and acquisitions (M&A) is high. Deal activity set back-to-back records for transactions in both 2024 and 2025, according to healthcare M&A research firm Levin Associates.

For operators looking to expand, that leaves fewer opportunities that meet traditional acquisition metrics. Growth in skilled nursing often requires looking beyond the conventional pipeline.

A struggling facility may have more potential than its current financials suggest. With an aging national population increasing demand for skilled nursing care, facility underperformance is often operational rather than structural. Leadership turnover, inconsistent oversight, or declining occupancy can quickly affect results.

Skilled nursing is operationally complex and there will always be some facilities that fall short of their potential. Long-term owners may decide they no longer want to reinvest the time and capital required to reverse declining results. That creates opportunities for experienced operators with the ability and capital to turn things around.

Turnaround opportunities begin with an operator determining what is broken and how it could be fixed.

Consider a hypothetical example. A facility is generating approximately $10 million in annual revenue but losing $300,000 per year. An experienced operator may determine that the losses reflect fixable operational issues rather than a lack of patient demand.

With upgrades, better staffing, improved census management and stronger hospital referral relationships, the operator forecasts that revenue could increase to $11.5 or $12 million. If those gains materialize, the facility operating at a loss could move to substantial positive cash flow in anywhere from six to 18 months.

Funding a turnaround can take capital beyond what an operator currently has available. In theory, the operator could finance the acquisition and initial improvements with private lending and later refinance through HUD once performance stabilizes.

The initial challenge, however, is qualifying for that original turnaround loan. Current facility performance may not support traditional underwriting at many banks, even if the operator demonstrates a clear path to improvement.

Most lenders will stop there. But a lender experienced in skilled nursing understands that the numbers may reflect temporary operational issues rather than underlying demand. Instead of relying solely on recent financial statements, they may evaluate the operator’s track record, local demand for care and other available capital to support the deal before structuring financing around the expected turnaround.

Not every turnaround opportunity is appropriate for financing. Before moving forward, borrowers should consider whether they meet the requirements.

Industry track record: The starting point is operator experience. These loans require a demonstrated track record in skilled nursing and the infrastructure to support performance improvement. Operators new to the business may not qualify.

Local focus: Even for experienced borrowers, lenders look closely at whether the opportunity fits the operator’s existing footprint. An operator with 19 buildings in Mississippi and Tennessee may be well-positioned to add assets in that region.

On the other hand, this same operator trying to expand into California without local infrastructure or familiarity with that state’s reimbursement process is facing a very different challenge, one that lenders likely want to avoid.

Upfront capital: Operators are typically expected to contribute meaningful equity — at least 30% of the total transaction — for the loan down payment and to build additional cash loss reserves to sustain operations while performance improves.

Lender relationship: Finally, an existing lender relationship can be helpful, as it demonstrates that a borrower has come through before. But it is not essential. Proven operators who have grown beyond what their current lender can finance could be candidates for working with another bank that understands the skilled nursing industry and the turnaround model.

Skilled nursing is a business built on relationships and experience. That same principle shapes CIBC’s healthcare banking team.

The team has worked together for more than two decades and has guided clients through multiple market cycles. Since 2008, the group has originated over $16 billion in loans, with total losses of less than $15 million.

CIBC's deep expertise informs a disciplined approach to evaluating operators and structuring turnaround loan deals that set them up for success. For more information, please contact the CIBC Healthcare team.