M&A Activity on the Upswing
The value of U.S. mergers and acquisitions was 35% higher in the first half of 2011 compared with a year earlier according to a recent report from PwC. Looking forward to the second half of the year, more companies are expected to increasingly look at mergers and acquisitions as a way to maximize shareholder value. PwC says U.S. activity should moderately strengthen in the second half, with 36% of U.S. businesses looking for new acquisitions in the next six months. After that, 44% of firms plan to execute acquisitions over the next 6 months to 12 months.
CRE’s Role in Mergers & Acquisitions
Mergers and acquisitions can often have a significant impact on a company’s corporate real estate portfolio and in many cases is a key component in the merit of the merger or acquisition both in terms of the financial value of the transaction and the operational performance of the enterprise going forward.
Maximizing shareholder value in any merger or acquisition requires a thorough evaluation of its impact on the corporate real estate portfolio and the formulation of a strategy to implement upon completion of the transaction.
There are three steps in the process:
- Pre-transaction Due Diligence
- Portfolio Evaluation & Strategic Plan
Preliminary Due Diligence: For companies even in early discussion regarding a potential acquisition or merger it is prudent to get a handle on real estate issues early on in the process. In many cases reliable data on a target company’s real estate portfolio may be relatively limited or lacking in detail. Since real estate is often the second or third largest item on the balance sheet how the real estate is handled prior to the transaction can be vital to the success of the venture.
Strategy Formulation: Once the transaction moves to the negotiation phase a more thorough evaluation of the real estate portfolio should be conducted to include detailed abstraction of lease agreements, property valuations and appraisals, building inspections, occupancy cost analysis and asset utilization. You will want to engage service providers to develop occupancy strategies, space plans, asset evaluations and provide a logistical roadmap to align the real estate with your business objectives. This plan may include securing additional space or disposition of excess space to include sale, lease, disposition or re-positioning of existing assets or lease obligations.
Implementation: As the potential acquisition moves past due diligence toward closing a comprehensive real estate plan should be in place for implementation once the merger or acquisition is completed. The ability to act quickly can have a huge impact on the overall success of the transaction. The dynamics of an unbalance market can provide opportunities as long as there is a proactive focus on connecting the dots.
Depending on the size and complexity of the real estate portfolio and whether your action items only include a single asset or multiple properties over time, be prepared and ready to act quickly, as success or failure is often realized early on. You will need to be decisive, responsive, and flexible and the speed of implementation will be important as market conditions can change quickly as we have seen over the past couple of years.
Involve Your CRE Advisors Early On
In all three phases of the process it is important to have your real estate service providers involved and the earlier in the process the better. Your real estate service providers can fill in the gaps terms of market information and assumptions during the due diligence phase and will be a critical component in developing a strategic plan to deal with real estate matters related to the merger or acquisition. Once the transaction is complete your service providers should immediately be prepared to systematically implement the detailed plan.
In summary, the process requires a lot of expertise, communication, research and planning but following this process diligently will present fewer surprises, and deliver results that improve the profitability of your transactions and the performance of your real estate and facilities.