Improving Asset Intelligence During M+A
By Tammy Carr


2018: The Year of Mergers & Acquisitions

The first quarter of 2018 saw a 67 percent year-on-year increase in merger and acquisition (M&A) deal value, according to Thomson Reuters data. The number of deals itself dropped by 10 percent, reflecting the increase in valuations. Globally, M&A deals in 2018 have totaled more than $800 billion, with U.S. M&A targets accounting for 47 percent of deal activity. In addition, cash reserves are up for the second year in a row for two-thirds of respondents in a 2018 Deloitte M&A survey. Corporations say that the primary intended use of their cash reserves is for M&A deals. Hailed “the year of M&As” by Forbes, the consensus for 2018 is that strong deal activity is ahead.

This data aligns with a recent Mortenson CFO survey, in which 67 percent of executives surveyed said that M&A was likely for their company in the next three years. However, an area which is a considerable hindrance to mid-market M&A deals is due diligence. According to the survey, 78 percent of executives said that facilities carry a risk during M&A, and 38 percent said that in their experience they uncovered a risk within the real estate and facility portfolio after an M&A transaction closed.

Mortenson has identified a particularly important, yet overlooked, area of due diligence. Specifically, not enough attention, time and detail is given to the analysis of the target firm's real estate and facility assets. A proper analysis, or lack thereof, can make a significant difference in capturing value from deals.

“Increasingly, executives are relying on outside counsel to deliver capital asset planning and analysis solutions to uncover not only hurdles to transaction completion, but also the potential that exists to unlock hidden value,” says Tammy Carr, Principal at Mortenson.

Mortenson professionals, working through numerous post-acquisition cases for organizations, detail that nearly one-third of facilities enter the footprint of the merged company with problems, including deferred maintenance and environmental concerns requiring mitigation. Even those issues aside, a CFO may encounter capex and opex concerns relative to new properties, which require one-time cash infusions or ongoing high levels of expense outlays.  

These problems are not the only concern. Untapped opportunities often exist that executives can turn into significant ROI wins for the combined company.

For a large utility, Mortenson discovered a $129 million property valuation for a severely underutilized site and subsequently devised a capital expenditure plan, a capital improvement plan and a new facility growth plan that allowed the company to capture real value that otherwise would have been missed.

Finding expensive surprises erodes an otherwise winning strategic move and raises questions around, “What else was missed?”

By way of a real estate portfolio assessment, executives ascertain the true conditions, costs and opportunities for existing assets across their combined ecosystems. M&A is always fraught with risk, but leaders who have visibility into their assets through forecasting, benchmarking and other innovative methods are the ones who successfully navigate their businesses in the midst of this uncertainty. A few tools that executives can use to avoid these risks include:

  • Real-Time Conditions Assessment: reveals data, specific to the actual expenses of acquired facilities, that is typically missed during due diligence
  • Corporate Real Estate Analysis: supplies actionable business intelligence and a roadmap to best value for property usage
  • Peer Benchmarking: analyzes how a facility is performing, in relation to operations and maintenance spending and/or energy spending, compared to peer facilities of similar size and use

“These are just a few of the powerful tools in our toolkit, which change the dynamic of M&A deal frameworks,” says Carr. “Too often, executives don’t reach out for this type of assistance until well into the post-acquisition integration period. We are here to help executives feel confident going into a deal, knowing they have the most current and relevant information on the target company’s portfolio.”

With M&A activity gaining steam in 2018, executives thinking about a transaction should consider utilizing services like these to gain strategic and tactical leverage in their negotiation, due diligence and closing process. “Information is the currency of a successful deal, and more than ever executives need the most detailed and accurate information to drive its success,” says Carr.