The first quarter of 2013 showed steady activity of merger and acquisition transactions, and the year continues to excite business and transaction lawyers. Headlines in the business pages announce the latest target takeover on a weekly basis. This year, Berkshire Hathaway announced its desire to spend billions of dollars on large acquisitions, then landed the rights to acquire Heinz with assistance from a business partner. In the technology sector, Yahoo announced plans to acquire Tumblr. Newly emerging global companies, like World Fuel Services, continue to expand their revenue streams year after year by acquisitions.
For some time, the markets have reported that capital is chasing deals and buyers are paying top prices to any willing seller. What can we expect after these transactions?
When it comes to real estate, I suggest that after the initial euphoria of celebrating a completed transaction, the buyer team should take a detailed look at the fee interests behind every parcel of property acquired. A full understanding of the current owned fee interests may allow for significant cash to be unlocked from these assets by use of a sale and leaseback structure. Quality leased premises continue to be desired by real estate investment trusts and other institutional investors. Favorable lease provisions can be made available over significant lease periods. Institutional landlords can also assist with financing tenant improvements to allow the tenant to advance on its desired infrastructure.
What if the target appears to have no significant real estate holdings that could produce value for the shareholders after merger? It is recommended, however, that a corporate user fully understand the portfolio of the acquired target in greater detail. Leases disclosed in any purchase and sale of the business may have been abstracted in order to provide the basic information required by the business representatives focused upon the transfer. It is likely that with further diligent review, certain lease contracts may be understood to present value and could prove ripe for negotiation with the landlord. Alternatively, if an exit is desired, then either a scheme to sublease the parcel or a payment to terminate a lease can be part of the real estate strategy.
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