ow the tide is out – way out – and it is not a pretty sight to see," said John Caslione, founder, president and CEO of corporate M&A advisory firm GCS Business Capital, at the opening session of the IAMC Spring 2008 Professional Forum at the Westin Kierland Resort & Spa in Phoenix. But the current economic crises may combine with a "second wave" of globalization to create ripe opportunity for asset managers to take their place at the M&A table.
      Setting a theme revisited throughout the Forum, Caslione said the weakness of the dollar and the rise of emerging markets may mean it's the companies and markets of China, India, the Middle East and Eastern Europe – rather than the old standby U.S. consumer – that pull the U.S. and global economies out of recession's grip.
      Mergers and acquisitions are a natural part of that shift, especially when sovereign wealth funds such as China Investment Corp. sit at US$200 billion and climbing, and are looking to go on a shopping binge. Whether their companies are the acquirers or the targets, asset managers involved in strategic planning need to break from business as usual, he said.
      "It's a whole new twist on the U.S. labor slogan 'Buy American,'" he said. "Foreign companies can fix deficiencies in their own global infrastructure, build relationships and enter the global supply chain."
      From the buyer perspective, corporate real estate directors increasingly find themselves navigating the "subtle cultural differences of managing newly acquired foreign assets," he said. "You may be called upon to execute incredibly complex real estate transactions. Will you be the acquirer or the target? It depends on the day."
      To bolster the point, he cited McKinsey & Co. studies that indicate cross-border M&A activity has risen from 30 percent of the total in 2005 to 40 percent today, and is expected to reach 50 percent by 2009. Thus an "all-shore" perspective is warranted.
      Whether the U.S. economy is woeful or not, M&A continues to be of value, he asserted. Among the tools available for asset managers looking to add their own value are making M&A knowledge a core discipline, beefing up "parenting" and integration skills and deepening knowledge of both your own company's property portfolio and the portfolios of potential target companies on the corporate radar. "Global M&A requires you to be flexible, to be ready to transform one asset into another, and to shift your focus," he said.
      "For some of you it may be a secondary thought," he admitted. "Many of you are probably called in for downsizing after a decision has been made, instead of them coming to you to see how you can blend portfolios – if you were a character in the movie Michael Clayton, you'd likely be called the fixer."
      Among the tools in the fixer's toolbox, he said, is the ability to nail down local intelligence at the market level: "Without a doubt, this is one of the biggest areas where asset managers can have an influence on the company," he said. "Survey potential assets, and do it before a specific deal is on the table."
      Caslione also advised chiseling away at the cost-cutting mindset, and building up a better awareness of the human dimension as a company seeks to find and then retain the best talent for its corporate culture and its location.
      Ultimately, as you and your company pursue an "all-shore" mentality, Caslione counseled to simultaneously follow General Electric's model of boundary-less behavior.
      "Ignore artificial walls – geography, function, any barrier in the way of a headlong rush toward the best ideas and innovation," he said. "It brings a sense of empowerment, that everyone has the ability to see beyond the trappings of business as usual or of locality.
      "If you aren't able to see beyond the boundaries of your own perspective," he said, "you may be limiting your future as well as your company's."       Corporate real estate directors indeed are trying to live out Caslione's counsel. But take it from the pros: Performing corporate real estate and facilities due diligence before, during and after a merger is tricky business. It's also increasingly commonplace, said the corporate real estate directors representing Linde Group, BASF and 3M in their "Merger & Acquisition Due Diligence and Integration" session at the IAMC Professional Forum in Phoenix.
      "There is no truth to the rumor that BASF stands for 'buy and sell factories,'" said Bill Pearson, director of real estate and facilities for BASF, "but it could, because it's a large part of our workload. With the acquisitions of Degussa Construction Chemicals, J.D. Polymer and Engelhard, our real estate load almost tripled. Inactive sites management has almost become a core competency."
      Navigating the M&A due diligence process takes time, compassion, discretion and an extra devotion to environmental awareness, they said. And, like so many other business areas today, it demands flexibility. After all, you may be the acquirer one day and the acquired the next.
      "Linde Group and BOC both grew very much by acquisition," said Pete Garra – director of real estate at The Linde Group and formerly at BOC Group – of the two companies that merged in late 2006. His team of two then took on corporate real estate responsibility for the U.S. and Canada.
      Garra said his team focuses on identifying possible synergy savings and looking for issues so there are no surprises, all in the interest of protecting both the target company and Linde as they navigate toward a smooth closing. Among the values real estate adds to M&A activity are cost analysis and reliability, as well as real estate expertise that keeps assigned real estate values in line.
      "We look for deal breakers," said Doyle Shea, senior real estate specialist for 3M. "We quantify lease liabilities and cost savings opportunities, and focus on integration."
      That means focusing on the human side of large mergers, at the same time you're targeting how to consolidate physical assets.
      "We haven't acquired a company full of happy people yet," said Pearson. "It's difficult enough to move masses of happy people, but it's brutal when you are moving unhappy people."
      Yet bringing real estate expertise to the newly merged entity can make for a happy portfolio.
      "I don't think we've acquired a company in my 15 years that had a real estate department," said Pearson. "But several of them desperately needed a real estate department. We've taught them how to do it now."       Doing your homework was a common theme raised by all three corporate speakers, who use tools such as a virtual data room to verify asset details, as well as discover any hidden liabilities or obligations.
      Common pitfalls in the M&A arena include already-existing environmental and successor lease liability issues, restoration obligations, assignability of contracts, post-closing occupancy arrangements, transition services agreements and obtaining timely landlord consents. The panelists also identified foreign language issues and incomplete or obsolete documents as persistent challenges.
      Acquiring companies also need to understand if there are any incentive packages that a target firm has negotiated with the local community or the state, said the panelists.
      Hidden in that potential issue is a potential opportunity, because the liability could be renegotiated.
      For his part, Shea noted that high deal volume and a small staff have conspired to streamline work methods.
      "We sat down with Jones Lang LaSalle and came up with a process," he said. "The ultimate deliverable is a workbook, with an abstract or summary of the leased or owned site. It has a consistent look and feel. Closing has improved a lot, because the internal legal team has narrowed to one legal firm."
      The biggest pitfall of all is underestimating the time necessary to complete proper and thorough due diligence, said Garra. Factoring into that is sheer deal volume, which one panelist said numbered 30 in the past year – with another looming afresh that very morning. That means consolidation, which in turn requires insights only experience can bring.
      The panel reminded listeners that real estate does not drive M&A, just as it doesn't drive other strategic corporate moves. But when it rears its head, it can do so in dramatic fashion.
      "Job one is to avoid unpleasant surprises," said Pearson. "Success is the absence of pain. Nobody cares until you don't own the road at the entrance to the plant."