Mergers and acquisitions (M&A) are a common strategy executed to reach organizational business goals. In 2021 alone, there were a total of 21,107 M&A transactions executed.
Whether the goal of the merger and/or acquisition is to break into new markets, extend a service line, or scale operations, there are a number of common transaction drivers:
- Access to low cost capital for business growth.
- Expanding geographic coverage.
- Increasing economies of scale.
- Capturing market share.
- Tax inversion strategies.
During the M&A process, real estate is typically a high expense, as it can account for significant assets and liabilities. However, it’s often overlooked. Commercial real estate professionals are typically not involved early or often enough in the transaction, which can lead to missed opportunities to increase value.
This post will explain why it’s critical to assess your real estate portfolio during merger and acquisition activity, and offer strategies for optimization.
The Importance of a Properly Managed CRE Portfolio
Properly managing an organization’s CRE portfolio plays an important role in the merger and acquisition process. A properly managed portfolio impacts an M&A by:
- Supporting the due diligence process, which can help determine the value of the final M&A deal with thorough investigation of financial, physical, legal, and environmental considerations. This process can identify and quantify any liabilities that may exist before the transaction is complete.
- Mitigating risks of integration with the right documentation, like title insurance, surveys, environmental reports, and property condition assessments. These documents protect buyers of CRE from liabilities discovered after a transaction is complete.
- Increasing the efficiency of the integration by defining the purpose of the new real estate portfolio.
- Maximizing proceeds by allowing stakeholders to identify unsupportive assets, which in turn can be divested.
With the right strategies in place, it’s possible to reap the benefits of a well-maintained real estate portfolio.
4 Ways to Manage Your CRE Portfolio Through a Merger or Acquisition
Depending on the size and complexity of the M&A transaction, the following activities can take anywhere between one and three years to complete.
1. Assess Your Acquired Assets
The first step in managing an expanded CRE portfolio is to evaluate the newly transacted properties. Think: How do current assets relate to organizational business goals? Are they truly assets, or do they have the potential to become liabilities?
2. Determine Your CRE Strategy
Once the assets have been categorized, stakeholders will need to select a CRE strategy. Use data to determine which assets will be disposed of rather than maintained or consolidated, and to identify where there are gaps in the combined portfolio.
If your organization decides to pursue disposition, prepare for lease termination negotiations and identify go-to-market strategies.
3. Execute Your CRE Strategy
During this stage, the CRE strategy will be executed and any physical moves will occur. It’s critical to ensure that the newly expanded organization’s CRE database remains updated with changes that take place.
4. Evaluate M&A Performance
Leadership can assess the performance of real estate associated with M&A by using KPIs. Commonly used metrics could focus on real estate occupancy costs, occupancy and utilization metrics, and performance against the market.
Ensuring your CRE portfolio is optimized throughout the merger and acquisition process is key to an efficient transition.
Learn More Strategies for Portfolio Optimization
Corporate real estate optimization is fundamental to achieving your business goals and responding to new challenges—especially during mergers and acquisitions. Learn more ways to address the assets in your CRE portfolio by downloading our free guide, Portfolio Optimization: The Essential Corporate Real Estate Guide.