Tammie Miller and Joe Froehlich, your hosts, welcome you to
another episode of the Deal Team Six podcast. In today’s
episode, Tammie and Joe discuss ways to think about real estate in
your M&A transaction.
(1:41) Why a buyer may or may not want the real estate. Buyers
can be interested in owning a business and its real estate if it is
a central part of the strategy, if it is crucial for the business
operation, or if there is a high cost of moving. Also owning real
estate assures some predictability in the cost going forward in
terms of growth and expansion.
(6:07) What happens when the business is not “tied” to the
building and can be sold apart from the real estate? What is the
benefit for the seller in this case? Most business owners want to
sell the business and real estate together, but in some deals, the
buyer does not want to own the real estate. Currently, valuations
for real estate are considerably higher than valuations on
businesses, which is a great opportunity to take advantage of that
incremental value.
(11:42) Is it hard to engage in two different transactions
(real estate and business)? It is definitely extra work but they do
not have to be done simultaneously.
(13:00) What is the role of an investment banker when it comes
to the sale of the real estate?
(14:30) Once the real estate is sold, what is the impact on the
business sale from an EBITDA point of view? The earnings of the
business will be reduced by the amount of the lease payment. This
lease will have to be looked at carefully by the buyer of the
business.
(20:22) What due diligence can you expect if the real estate
remains with the business? The buyer is usually not interested in
taking any liabilities pertaining to the real estate.
(23:23) CAPEX decisions: Should a seller make major capital
expenditure purchases/changes/additions to our building prior to
selling our business? This is a very common question. As a business
owner, you have to continue to run the business as if you are going
to own it forever, however, you don’t have to make substantial
long-term decisions about the business when you are not going to be
the beneficiary of them.
About the Podcast
Are you contemplating a sale of your business? Deal Team Six is a mergers and acquisitions podcast created specifically for family-and-founder-held business owners that are contemplating a sale of their company. The podcast will include a variety of mergers and acquisitions topics, as well as interviews with business owners and industry professionals.