Be it strategic or opportunistic, the focus for any merger and acquisition (M&A) activity is on the business opportunity – what does it bring to the existing organisation or can a distressed business be nurtured through challenging times to bring financial gain in the future?

With regards to real estate and M&A, this could be  described as the elephant in the room – everyone knows it’s there but its impact is so often over looked.

The hard facts of property leases can be easily identified but what of the commerciality of these leases, what are the risks and opportunities inherent in a corporate portfolio?

It is reasonable to expect there to be history outlining headline details of a portfolio, such as lease term, rent passing, break date and rent reviews, but what sits behind these headlines and is there an innate risk? Factors such as whether properties are under-rented and therefore building up budgeting issues for the rent reviews due in 12 months’ time, need to be considered. A high level portfolio analysis is imperative to identify risks and opportunities, identifying where it may be appropriate to seek warranties, for example around dilapidations liabilities.

A number of further questions also need to be considered. For example, having identified and, to an extent, quantified the portfolio being acquired, how does this fit with existing properties? What does rationalisation look like, how can risks be mitigated and opportunities leveraged? What flexibility does the portfolio have to support the business as it brings about change?

On top of this, M&A activity that takes place during the current circumstances also has a further unique set of issues to overcome, which underlines the importance of due diligence throughout the entire M&A process. This will become even more imperative where the target business operates in a sector particularly badly hit by Covid-19 such as retail, hospitality or travel, and where there are multiple outlets or retail locations in the portfolio.

More than ever before, getting the right advice on real estate during the M&A process is critical. The pandemic has brought property into the spotlight in a way that was never witnessed in the Global Financial Crisis; its very use is being challenged, as is how it is occupied and where it should be located, with the speed of evolution accelerated.

It is therefore vital during an M&A process to understand the business strategy before considering the real estate; the business must drive the property not the other way round.

Having under taken the pre-deal due diligence and analysis of the portfolio, post-transaction integration or separation of the real estate then follows to support the overall business strategy and objectives.

The real estate portfolio synergies, operational synergies and market facing synergies all need to be brought together, to create the opportunities and support the business integration planning, leading to successful integration and implementation.

Further information

Contact Yvonne Lee

Contact Worldwide Occupier Services