Why is it important to Optimize a corporation’s RE Portfolio in M&A Deals? Let’s look at this from the Board of Directors’ perspective…
In the realm of mergers and acquisitions (M&A), understanding the full spectrum of a target company’s assets is crucial for a successful acquisition. Among these assets, real estate, whether owned or leased, represents a meaningful portion of a company’s balance sheet. The company’s board of directors is poised to provide strategic advice on this topic of M&A acquisitions.
By conducting a comprehensive portfolio analysis during the assessment or diligence phase, companies can proactively address real estate issues, leading enhanced long-term operational efficiency. This process also reveals significant financial opportunities, including monetization, cost containment, and consolidation. Due to the right-sizing that companies have completed since the start of the pandemic in 2020, the average size of leases signed is 11% smaller compared to pre-pandemic leases.
For example, from Pre-Covid to Post-Covid office space, the average lease sizes have dropped:
From 2014 - 2019 = 7,356 RSF
In 2020 = 6,488 RSF
In 2022 = 6,210 RSF
In 2023 = 5,820 RSF
and in 2024 = 5,820 RSF
(Source: CoStar)
From evaluating redundancies to leveraging market conditions and maximizing credit advantages, thoughtful real estate planning can unlock substantial financial and operational benefits in the M&A process, and can uncover overlapping assets. Carefully evaluating redundancies during the due diligence phase can not only unveil cost savings opportunities by scaling footprint, it can also improve operational efficiency through location and site selection analysis.
If a board’s Independent directors suggest conducting a real estate portfolio optimization analysis during the diligence phase of an M&A transaction can be an essential tool. By understanding the full scope of the target company’s owned and leased real estate, CRE advisors can identify monetization opportunities, ensure proper financial statement impacts, and achieve operational and cost synergies to unlock value.
Moreover, creating a strategic plan around the target’s real estate portfolio can reduce integration risk and create near term and long-term value for the combined entities, benefiting partners and shareholders.
When it comes time for your board of directors to strategize with the business leaders during the M&A acquisition phase, consider bringing on an independent board director. Talk to Tamara Alexander- Johnson: she believes effective boards must proactively shape—not just react to—the future.
“Boards that anticipate trends keep companies resilient.” This is a key principle that she embodies in her roles as a board of director.
Tamara Alexander- Johnson
Current Board of Director for Profit and Non-profit organizations
https://www.linkedin.com/in/tamara-alexander-johnson/
Cell: 303-502-4611
