Article

IMPROVING ASSET INTELLIGENCE DURING M&A

December 01, 2016 By Tammy Carr

Early Analysis Prevents Surprises Down the Road

The third quarter of 2016 merger and acquisition (M&A) activity for completed deals expanded at a faster pace over the second quarter according to the most recent issue of Mergers & Acquisitions. Factset compiled year-to-date U.S. M&A activity through the third quarter totaling $1,704.4 ($Bil). The consensus on the final quarter of the year, as well as for 2017, is for a strong expansionary environment with a full pipeline, as indicated by the Mergers & Acquisitions M&A Conditions Index.

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The driving force behind this surge in confidence according to index survey participants is that “obstacles to closing deals that persisted in the beginning of the year, such as financing challenges, have eroded.” This is particularly true in the middle market where dollar value volume thus far in 2016 through the third quarter stands at $200 billion.

For certain, financing conditions are the most critical factor. However, an area which is a considerable hindrance to mid-market M&A deals is due diligence. Citing a 2016 study, the CEO of Deloitte Corporate Finance LLC notes, “…among the broader universe of companies in our survey, 78% pointed to insufficient due diligence as a key barrier to success in M&A transactions."

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.  

  • In one case, a Mortenson review for a newly merged health system uncovered aging infrastructure in their acquired campuses. Mortenson was able to provide a strategic capital blueprint to prioritize upgrades and improvements targeted at minimizing future surprises.

And 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.

In working with Mortenson, executives ascertain the true conditions, costs and opportunities for existing assets across their combined ecosystems. The Real Time Conditions Assessment provides data, specific to the actual expenses of acquired facilities, revealing knowledge that is typically missed during due diligence. The Corporate Real Estate Analysis supplies actionable business intelligence and a roadmap to best value for property usage.

“These are just two 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 2017, 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 a successful merger,” says Carr.

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