Mergers & Acquisitions - a rocky road

Posted On Friday, 22 February 2002 02:00 Published by
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PROPERTY portfolios are often given insufficient attention in mergers and acquisitions, even though they may represent a significant portion of the balance sheet and operating expenses.
PROPERTY portfolios are often given insufficient attention in mergers and acquisitions, even though they may represent a significant portion of the balance sheet and operating expenses.

To be effective and contribute measurable value, property should be dealt with as an important aspect by any team that is identifying and planning how to achieve a transaction's goals, says Michael Schirnig, of Corporate Real Estate Services, a division of Old Mutual Properties.

'In-house property executives lament that they are typically asked to review' leased and owned premises just before a merger or acquisition is concluded. They can rarely add significant value in so short a timeframe.

'In essence, their role is reduced to assuring dealmakers there is nothing drastically wrong with the property portfolio.'

Schirnig says there should be adequate time to conduct property investigations, formulate strategies and develop an implementation plan.

He says proper due diligence on real estate assets conducted sufficiently in advance offer an opportunity to identify undiagnosed problems, liabilities and potential sources of value.

If the financial magnitude of the specific issue is great enough, the terms of the merger or acquisition deal could be influenced.

'A recurring issue for conducting due diligence and merging corporate property portfolios is the quality of the information. Typically, merging companies do not use the same database software and do not collect the same information.'

Schirnig says that in some cases there is no formal database other than spreadsheets maintained by various individuals in the firm, detailing some level of property information.

'Creating a detailed database using specialised real estate software is the foundation for gaining a thorough understanding of the portfolio and the appropriate strategies to create long- and short-term value.'

In the short term it is critical to determine whether underutilised assets exist, because they may be disposed of to reduce liabilities and generate cash. In the longer term, underutilised assets can serve as a reservoir of space for future expansion or reuse.

Schirnig says an essential first step in the merger and acquisition process is to stop or substantially slow down space acquisition and disposal.

'Put a hold on in-process' transactions or new deals until the longer-term nature of space requirements is understood. '

Merging entities frequently present sharp contrasts in the area of culture and workplace environment that need to be resolved, says Schirnig.

Publisher: Business Day
Source: Business Day

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