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January 28, 2016

Successful M&A can only be realised if data and insight about property portfolios is gathered thoroughly, interrogated intelligently and used strategically from start

Global M&A activity hit a new high in 2015, with Mckinsey & Company recently reporting more than 7,500 deals with a combined value of over US$4.5 trillion. Megadeals – those valued at more than $10 billion – were notably high.

Investors may hold their breath in anticipation of a market reaction when a deal is on the table but there’s no denying that buying and selling businesses presents myriad benefits, whether it’s cost cutting, consolidation, accessing new customers or total transformation.

Real estate can be a highly efficient way to maximise value from M&A. But all too often, property is assessed in the latter stages of negotiation and this presents multiple problems.

“Real estate needs to be involved from the beginning of the M&A process and have input into the deal strategy at key stages,” says Tom Carroll, head of EMEA corporate research.

“Only by understanding the detail of the property portfolios of both the acquiring and target company can strategic decisions about deal structure be made,”

In a new JLL report, Successful M&A: capturing value through real estate,  76 percent of companies involved in a merger or acquisition over the past five years claim to consider real estate an important or critical factor.

But in the interviews carried out for the report, in almost in every case, horror stories were told.

“Many businesses used the phrase ‘skeletons in the closet’ when talking about the costs, risks and unfit-for-purpose property strategies, which were only discovered after closure. These then went on to cause long-term value problems in the new organization.”

How and when real estate creates value

If real estate is integrated into the due diligence stage, risks associated with a company’s commitments can be identified and quantified. Understanding these risks can help influence negotiations.

“The danger is often not in the operational portfolio but in the non-operational portfolio,” says Carroll.

He offers an example: “Some companies have mistakenly become locked into long lease terms when they thought they were taking on owned or freehold property. If they had studied the portfolio’s details properly in advance, they would have realized that the acquired company had done a sale-and-lease-back in advance of the deal.”

Meanwhile, carrying out a comprehensive assessment of property commitments at the due diligence stage allows opportunities for cost-optimization to be found. These opportunities, in turn, can help companies maximize the overall return on investment.

Making real estate count

Ultimately, a more robust real estate strategy ought to resonate with an investors’ appetite for efficiency.

“A real estate strategy that’s aligned to the deal strategy can accelerate both operational objectives in an M&A transaction and business continuity after closure,” says Remco van der Mije, associate director, JLL Netherlands.

Issues such as talent retention can benefit from properly managed property portfolios as they change hands. Real estate can also be used to help establish a new corporate identity and collaboration between employees from both companies.

Deal confidentiality protected

And despite the preference for dotting the ‘I’s and crossing the ‘t’s’ with as few people present at the boardroom table as possible, widening an M&A team to include property experts poses no risk to confidentially, advises van der Mije.

“There’s no logical or structural reason not to bring real estate in early on and extend these processes to them,” he says. “Robust risk management and confidentiality frameworks  apply to real estate just as they would to financial or HR teams.”

In fact, the M&A survey shows that ‘best in class’ companies provide insights across all facets on the deal at the right points in time.

Download the full report here.

For more information:

Tom Carroll
Director - EMEA Research

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