Maximizing Corporate Real Estate's Contribution to Merger and Acquisition Success - Site Selection Magazine

From Site Selection magazine, March 2000

M A N A G E M E N T S T R A T E G Y

Challenging Old Assumptions
Even with dramatically increasing levels of M&A activity across all industries, a substantial merger or acquisition is still a relatively infrequent event in the life of many corporations. But the experience offers companies an ideal opportunity to re-think and re-engineer their business processes. With a unique combination of the above-referenced drivers present in each merger or acquisition, corporations typically review their key business functions, including manufacturing, sales, marketing, distribution, R&D, and customer service. They also review key internal functions, such as finance, accounting, information technology, human resources and administration in the most open-minded fashion in making substantial process changes. There is probably nothing worse than "grafting" a merged or acquired organization onto the dominant entity without reviewing potential areas of business or operational synergy.

Value of Worldwide M&A Activity In the corporate real estate and facilities context, there is a natural tendency initially for companies to limit the scope of the examination of business processes. Some common reasons put forth by corporations include:

"We're waiting for the integration team and the business units to make their decisions regarding consolidating operations and new initiatives."

"We have not been given a specific cost reduction target."

"We don't have any major lease expirations coming up during the next twelve months."

"We own most of our real estate; there is really nothing to do."

"We're still getting acquainted with the real estate people at the acquired company. We don't want to upset anything."

"We are in the 'black out period.' Nothing is going to happen until the deal approvals are received."

"We just outsourced a substantial portion of our real estate operations earlier this year. We don't think anything needs to be changed right now."

The financial and other benefits of a merger or acquisition are often a wasting asset. The longer it takes to achieve financial goals, such as revenue growth and cost reduction, the less value there is to the transaction, and the less forgiving Wall Street becomes. A merger or acquisition has both quantitative and qualitative implications for the corporate real estate function that necessarily dictate/support a thorough and fresh look at the processes.

Involve the Corporate Real Estate Department
Corporate real estate is rarely the key driver for a merger or acquisition. There are only a few recent exceptions, for example, the 1999 purchase by McDonald's of the Boston Market restaurant chain which was significantly influenced by the latter's portfolio of prime real estate.

Corporate real estate executives' common lament is that they are typically asked to "review" corporate real estate and facilities a few weeks before the transaction closes, and they therefore can rarely add significant value in so short a timeframe. In essence, CRE's brief pre-closing mission is distilled down to assuring the deal makers that there is nothing drastically wrong with the real estate portfolio. Further, the internal real estate staff is frequently asked to sign-off of on accounting reserve numbers without adequate time to conduct a thoughtful evaluation.

To be effective and contribute measurable value, the corporate real estate department should participate as a senior member of any pre-closing integration team charged with identifying and planning how to achieve the transaction's goals. Further, there should be adequate time for corporate real estate to conduct investigations, formulate new strategies, and develop an implementation plan. Without the input of internal and external real estate professionals, decisions made by integration teams and business units will lead to missed opportunities for creating competitive advantages, reducing costs, and improving efficiency. Finally, the umbrella process of how real estate decisions are made should be reviewed in conjunction with the transaction.

In some cases, merging corporations do not have a well-developed corporate real estate function or even a formally designated executive position with responsibility for real estate. Under these circumstances, third-party real estate consultants or service providers can play a significant role in supplementing the integration team's corporate real estate expertise.

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