Our disruptive landscape is driving companies to evolve with the result that Merger & Acquisiton (M&A) activity is currently at record levels with worldwide deal-making up by 32% from 2014*. Multi-nationals and big companies are battling to cope with the competition from niche developments and start-ups that have the ability to scale quickly and efficiently. They need to make important decisions if they are to continue to hold a dominant share of the market.
JLL research has revealed that real estate can create value for companies in four major ways throughout the M&A lifecycle: mitigate risk, optimise costs, accelerate strategy and ensure successful integration.
If you consider that corporate real estate represents one of the largest asset classes and is often the second-biggest cost on a corporate balance sheet, it is clear that it lends powerful implications to a business’ strategic, financial and operational goals. For any company considering a merger, an acquisition or a divestiture transaction, they should bring in their CRE teams early on in the discussions to unlock the value in their real estate portfolios. According to JLL research, 76% of companies involved in a merger or acquisition over the past five years consider real estate an important or critical factor of success
Comprehensive data and insight can be used to determine assets vs liabilities – a portfolio can be positively impacting earnings or restricting future expansion and agility- a more robust business case can be built in the due diligence phase to get the process right.
Whatever the M&A strategy, the fact is it will come with enormous challenges and changes. If you elevate CRE into the confidential layer of the strategising process, you stand a far better chance of highlighting the opportunities and mitigating the risks. From portfolio benchmarking to more accurate valuation and forecasting, there is a range of tools available which will benefit all the risk, cost, operational and integration elements. This is key for businesses looking for speed of integration, speed to market, risk mitigation and cost optimisation.
The current pace of M&A activity is fuelled by a fast evolving and volatile global economy. With a fully aligned real estate masterplan, your business will be primed to act when the time is right. For instance, where organic growth is not possible, it can make sense to divest the underperforming business to focus on the core business and drive profitability. To this end, JLL has assisted global companies to identify their most profitable and productive assets and dispose of their non-core assets. Maximising the value of real estate in the M&A process and selling off assets can unlock capital gain and reducing the burden of large investments in year one. A real estate strategy can identify consolidation opportunities between two company portfolios, highlight financial and operational liabilities, business synergies and economies of space with the aim to increase efficiency, productivity and performance.
In emerging markets particularly, corporate investors are employing M&A strategies to steer their plans for rapid growth. CRE is the vehicle that will ensure these acquisition plans run smoothly. Integration is critical and a professional CRE capability can improve the speed, efficiency and effectiveness of the process. It can also ensure commonality across quality standards, company brand and values, working styles, and let’s not forget- the people.
Global M&A activity hit a new high in 2015 and 2016 maintained this with more global mega deals recorded. The 2017 outlook doesn’t show any sign of this activity decreasing. This forecast is underpinned by healthier corporate balance sheets, renewed confidence and attractive financing conditions, CRE may expect a boost in M&A activity, posing the opportunity to maximise the value of real estate throughout the M&A process. Technology and sophisticated data analysis definitely underpins the M&A process. It is the key to unlocking better value and determining likely success, and is essential to the due diligence process. With strong CRE-based analytical insight you can make the right decision to buy, sell or merge.
I will be attending the CoreNet Global Summit in Amsterdam from 14-16 September 2016. This year’s theme is “The Bigger Picture”. I look forward to attending the joint JLL and client presentation on the 16th: M&A – A Big Deal for Corporate Real Estate!