When dealing with mergers and acquisitions (hereafter referred to as M&A), it is highly likely you will have to deal with some real estate assets. It’s important to be aware of the actions you need to take when dealing with M&A in real estate.
Real estate can represent a high corporate cost, but it can also be a source of liquidity and returns. When you are going through a merger or acquisition, any owned and leased real estate can end up being either an important asset or an unexpected liability. It’s essential that you take the proper steps during an M&A transaction to unlock the full value of a real estate portfolio.
These are the main things you must be aware of when dealing with M&A in real estate:
- Insist that any real estate involved be properly considered separate from any other negotiations
- Undertake due diligence including legal, financial, and physical due diligence
- Know the true value of the real estate you are purchasing
At startMYplan, we can help you with all of this and more to ensure that your M&A in real estate transactions goes smoothly.
Properly Consider Real Estate During an M&A Transaction
When you are dealing with an M&A transaction, it’s important to make sure that any real estate involved is properly considered. During a lot of M&A transactions, real estate is not considered as a separate topic. It often ends up lumped into discussions about things like procurement or shared services.
If, however, your company can properly understand the real estate resources it’s acquiring, it will be in a much better position to navigate an M&A transaction successfully.
You’ll need an accurate assessment of both the investment value of a real estate portfolio as well as its operational value to your organization during a merger or acquisition. In addition, you should keep in mind both your company’s goals and how a merger or acquisition can help you achieve your long term goals.
Undertake Proper Due Diligence
It’s very important that as part of your overall due diligence process, you undertake due diligence before an M&A transaction. There are three main types of due diligence you should undertake:
Legal due diligence
You must ensure that the seller has the right to transfer the company and any real estate. You need to check for any potential issues with the title, such as restrictions on it or zoning issues that could impact how the company property can be used.
Financial due diligence
You need to confirm any potential liabilities from either legal or regulatory violations that the current owner has committed. In addition, your financial due diligence should include an analysis of the seller, taking into account their reputation and track record and their financial history in regard to any assets.
Physical due diligence
You should have any assets that are part of an M&A transaction inspected to see if any repairs will be required and how much they will cost. If a structure is in poor shape and requires extensive repairs, this will decrease its value, and this impact must be considered during M&A negotiations.
Preparation is critical in M&A transactions that involve real estate. A business consultant can help you put together a due diligence plan that will address all relevant issues prior to the completion of the M&A.
Know the True Value of the Real Estate
When dealing with M&A in real estate, it’s important that you know the true value of the real estate you are working with. Here are some ways you can do that:
- Get a professional real estate valuation to get an idea of the true value of a building. It may be worth having more than one valuation performed.
- Ensure the seller discloses any ownership issues that could impact either the purchase of the real estate or its value.
- Make sure proper documentation is available. Ask the seller for all available documentation — anything from environmental studies to appraisals. This will help you know if the current owner has been following all the building’s necessary rules and regulations.
Taking all of these steps will help you determine the true value of the real estate that is part of an M&A. This will ensure you do not overpay for any real estate assets.
How can a business consultant help your real estate M&A?
A business consultant can help you with vetting, due diligence, and negotiation consulting during an M&A transaction in real estate. They know that integrating companies through a merger requires both time and resources, and can help you with all of that. Their network of real estate professionals can give you all of the following:
- Training and coaching on everything from pre-acquisition research to company evaluation
- Instructions on how to develop a new blueprint for your real estate company
- Guidance on what to do if it looks like the deal may fall through
A good business consultant should also be able to help accelerate the M&A timeline, saving you time and money.
You’re Ready for Your Next M&A in Real Estate
You’ve now learned how important it is to consider real estate separately from anything else during an M&A transaction. It’s also critical to undertake legal, financial and physical due diligence and know the true value of the real estate you are purchasing.