Real Estate as Part of a Mergers and Acquisitions Transaction

Tammie Miller and Joe Froehlich, your hosts, welcome you to another episode of the Deal Team Six podcast. In today’s episode, Tammie and Joe discuss ways to think about real estate in your M&A transaction.

• (1:41) Why a buyer may or may not want the real estate. Buyers can be interested in owning a business and its real estate if it is a central part of the strategy, if it is crucial for the business operation, or if there is a high cost of moving. Also owning real estate assures some predictability in the cost going forward in terms of growth and expansion.
• (6:07) What happens when the business is not “tied” to the building and can be sold apart from the real estate? What is the benefit for the seller in this case? Most business owners want to sell the business and real estate together, but in some deals, the buyer does not want to own the real estate. Currently, valuations for real estate are considerably higher than valuations on businesses, which is a great opportunity to take advantage of that incremental value.
• (11:42) Is it hard to engage in two different transactions (real estate and business)? It is definitely extra work but they do not have to be done simultaneously.
• (13:00) What is the role of an investment banker when it comes to the sale of the real estate?
• (14:30) Once the real estate is sold, what is the impact on the business sale from an EBITDA point of view? The earnings of the business will be reduced by the amount of the lease payment. This lease will have to be looked at carefully by the buyer of the business.
• (20:22) What due diligence can you expect if the real estate remains with the business? The buyer is usually not interested in taking any liabilities pertaining to the real estate.
• (23:23) CAPEX decisions: Should a seller make major capital expenditure purchases/changes/additions to our building prior to selling our business? This is a very common question. As a business owner, you have to continue to run the business as if you are going to own it forever, however, you don’t have to make substantial long-term decisions about the business when you are not going to be the beneficiary of them.