The Leader - January/February 2009 - (Page 16)

Merg e rS & A cq u i S i t i o nS: H ow r eA l eStA te cA n Pl Ay A Ke y ro le tion to International Financial Reporting Standards (IFRS) creates additional issues that CRE teams must plan for and address. The first issue relates to the valuation of the real estate assets held by either entity in a merger. All fixed assets, including property, must be initially recorded at cost. Thereafter, there is a choice of continuing to account for property at cost or to revalue it to ‘fair value’. Fair value is defined under IFRS as the amount at which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Fair value is required to be measured by reference to market-based evidence, and as such it can include the ‘hope value’ attached to alternative use. The accounting around onerous leases associated with M&A also requires careful treatment, although it hasn’t been markedly altered by the transition to IFRS. The first action for any CRE team is not to avoid the problem of onerous leases – empty the space and make a provision for it in the accounts. This provision should take full account of all the exit costs around the lease; professional fees; incentives; market rents; void running costs and dilapidation expenses. Finally, effective CRE teams undertake sensitivity analysis on the assets, establishing a range of potential values that can be attributed to the assets and allocating a probability to each of them to derive an anticipated exit value. Hire additional resource to ensure agility and responsiveness. Few, if any, organizations have all the elements of a delivery model in-house so having partners who can step into the breach quickly and function as part of the team is essential. This has been further exacerbated by the steady streamlining of CRE functions over recent years. When one adds in the time and people pressures associated with the majority of M&A deals, it is not surprising that good CRE leaders often seek to bring in support and expertise from external sources. Understand and exploit the synergies between the real estate portfolios and leave no stone unturned in value extraction. Market leading CRE teams look beyond the relatively short-term horizons of pre-deal due diligence and post-deal integration. They consistently identify opportunities to generate efficiencies within and release value from the real estate portfolio and actively promote the size of these opportunities to the key stakeholders within the newly created business. This characteristic is continually on display as the new business develops and evolves further and establishes CRE teams as significant contributors to the financial well-being of the organization rather than merely operational facilitators. Effective CRE teams also recognize that real estate contributes to the opportunity that the corporation has identified in terms of achieving the maximum value from the corporate transaction. Often an acquisition is undertaken to achieve 2+2=5 in terms of revenue, so CRE teams must ensure that the bricks and mortar support that goal in order that staff can create and innovate as soon as possible after the merger. This increased productivity can easily eclipse any savings made in real estate several times over. About the Authors Dr. Lee Elliott is responsible for the delivery of Jones Lang LaSalle's Corporate Occupier research program for the EMEA region. Shelley Frost is a Regional Director within EMEA Corporate Solutions for Jones Lang LaSalle. Shirley Ghan is a senior analyst within the EMEA Forecasting & Economics team, which is part of the broader Jones Lang LaSalle EMEA research team based in London. David McMillan is a Director in Jones Lang LaSalle's Corporate Solutions business responsible for managing a number of key corporate client relationships. Summary M&A has been, and will remain, a clear strategy adopted by corporate occupiers to achieve the growth, market penetration and financial performance expected of modern business. This article has unpacked the role that best in class CRE teams play in maximizing the opportunities and minimizing the risks associated with M&A. Adoption of at least some of the ten characteristics outlined within this paper can assist CRE teams in making an effective and recognizable contribution to the M&A process. While there are very real challenges and pressures in any M&A process, they should not be viewed with fear or trepidation by CRE teams. A responsive, pragmatic contribution grounded in a real understanding of corporate strategy and which identifies and communicates real added value to the business, goes a long way to achieving the strategic position that all CRE teams desire. For more information on this topic, go to CoreNet Global’s Knowledge Center Online. Mergers and Acquisitions - Finding the Hidden Value in Real Estate www2.corenetglobal.org/dotCMS/ kcoAsset?assetInode=3322329 Strategic Partnering for Mergers and Acquisitions www2.corenetglobal.org/ dotCMS/kcoAsset?assetInode=1306922 2 0 0 9 tH e le Ade r 16 JAnuAry / FebruAry http://www2.corenetglobal.org/dotCMS/kcoAsset?assetInode=3322329 http://www2.corenetglobal.org/dotCMS/kcoAsset?assetInode=1306922 http://www2.corenetglobal.org/dotCMS/kcoAsset?assetInode=1306922

Table of Contents Feed for the Digital Edition of The Leader - January/February 2009

The Leader - January/February 2009 Contents Leadership Message from the CEO Real Estate in the News Mergers and Aquisitions Assessing Green Building Performance Measuring Space You Actually Use Global Trends in Sustainable Real Estate Whirlpool’s Lee Utke Northmarq’s Kevin Farrell Plastics: Hoping for Resiliency in Resins Regional Profile: Heartland Holding Strong Industry Profile: Ascendas Brings New Age Business Space to Asia-Pac Industry Tracker From the Applied Research Center Discovery Forum Findings Capital Corner Career Development Young Leader Economic Development in the News Learning Spotlight Connect With CoreNet Global Index of Advertisers A Look Ahead In our Next Issue Calendar of Seminars

The Leader - January/February 2009

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