Large-scale Corporate M&A
Behind labor costs, real estate vies with technology as an organization’s second largest expense category. Given such bottom-line cost and risk implications, many large-scale corporations do not consider real estate during their M&A due diligence process. There can be significant value in understanding the impact that real estate can have on protecting the intent and value of a strategic acquisition.
Private Equity Firms
Likewise, PE firms dealing in a variety of industry categories and transacting multiple companies per year would also be well-served by performing a comprehensive real estate portfolio analysis and opportunity assessment before they finalize a deal.
When real estate is not part of the due diligence analysis, several risks, hidden costs and missed opportunities may surface post-integration that can quickly erode value from the deal. The following are examples of issues that should be addressed in the pre-M&A due diligence process:
- Asset Discovery – Inaccurate portfolio baseline value and costs
- Asset Risks – Lease terms, environmental issues and market factors that may present future increases in occupancy costs and risks that may limit portfolio flexibility
- Redundancy – Locations within close proximity to one another that could be prime candidates for consolidation
- Business Alignment – Portfolio alignment with changing customer dynamics, advancing technology’s impact on operations, and future talent needs
- Integration – Cost and degree of difficulty to execute
- Divestment – Hidden costs or value associated with divestments
At NKF, our approach to the M&A due diligence process focuses on the following objectives:
- Understand M&A Intent. There is no ‘one size fits all’ when it comes to M&A; each deal is unique and drives a different set of strategic issues impacting real estate.
- Optimize Portfolio to Drive Value. Establish a real estate optimization plan and gain consensus among all stakeholders to improve operating efficiency and overall profitability.
- Perform a Full Risk Assessment. Review market conditions for expiring leases to understand impact on future costs; understand lease renewal terms, limitations and termination options for short and long-term portfolio planning.
- Develop Clear Performance Measures. Identify appropriate real estate best practices and establish KPI’s to measure portfolio and individual facility performance
- Ensure Successful Integration Planning & Execution. Create a high-level roadmap for effective resource planning and scheduling in support of potential portfolio and operational integration opportunities.
We are working to shift perceptions about real estate’s role in M&A activities and raise its profile in the due diligence phase. By leveraging market intelligence, real estate management best practices and data-driven analysis, we help clients to identify hidden opportunities, costs and risks to extract untapped value from every deal.
Managing Director, Portfolio Strategy, GCS