March 29, 2016
According to Bloomberg, the fourth quarter of 2015 closed the year as the most active period in history. The total announced M&A transaction volume exceeded $1 trillion for the first time since 2007.
Activity has spanned a multitude of industries, but M&A transactions in the manufacturing, high-tech/semiconductor and 3PL sectors are especially important to U.S. industrial supply chain dynamics.
M&A’s provide alternatives for revenue generation to companies unable to increase sales, and opportunities for mature corporations struggling to attain additional organic growth. Furthermore, M&A’s offer benefits such as increased R&D capabilities and access to additional distribution channels. Yet one of the most overlooked financial opportunities lies in the participant’s real estate assets.
As industrial mergers and acquisitions continue, competition for acquiring companies may escalate, resulting in increased pressure for returns. Two factors that are often overlooked in the process but can play a significant role in unlocking the value of any M&A are:
- Understanding both the compatibility and inherent value of the real estate footprint early in the due diligence phase
- Determining the potential operational cost savings in a consolidated and rationalized operating footprint and/or supply chain
Two important portfolio optimization strategies exist where company leadership can increase M&A value:
- Include real estate in the deal term: Evaluate real estate early. Pre-offer and pre-close, stakeholders on the buy side can identify synergies, redundancy risks and most importantly, opportunities in the real estate portfolio.
- Identify and quickly act on portfolio opportunities: Efficient integration of real estate opportunities identified early in the process can result in significant cost savings.
Analyzing a combined real estate footprint early in the process provides the implementation team with actionable items to consider after close. Tactics may include maximizing value by the elimination or combination of redundant real estate and improving performance at inefficient or underutilized facilities.
Once real estate footprints are analyzed and optimized, another key to greater value from M&A activities is a rationalization of the overall supply chain. This can lead to both improved asset efficiency and increased operating margins. The following are key steps in the process of optimizing supply chains:
- Develop an accurate baseline of current operations
- Develop an accurate estimate of both one-time and recurring costs
- Model consolidation synergy savings and conduct scenario analysis
- Conduct stress test on results
Real estate and supply chains, when considered strategically and early in the process, can create competitive advantages to unlock additional value in M&A activity. To learn more about how to increase M&A revenue and growth potential through optimizing portfolios and supply chains, click here.