Question about Real Estate/Buildings as it relates to a LMM PE Acquisition
Broad question: Irrespective of the actual business housed inside any building, how do LMM PE firms view the real estate/building in which the business is housed? Do these considerations change whether the building is owned or leased by the business/business owner? What about whether it would be a platform or bolt on acquisition— if the latter, might they move the business into their platform investment’s building should there be sufficient room? Or the general condition of the building, maybe it’s too small for a growing company or just old and needs refurbishment.
Hypothetical question: Say I own a LMM business as well as the building in which the business operates. I want to sell the business to a PE firm, but I do not want to sell the building. Should the business be bought, i would allow the new owners to stay in the building, paying market rent, for something like 6-12 months as they search for a new home. Would this be such a burden to the investors that they would be less likely to buy the business? Or is this something that happens from time to time?
These questions popped into my head because I recently saw the above situation play out but with the acquirer being a public company entering a new country/market. Was wondering what considerations are relevant to PE firms.
Bump
PE buyers typically don't want to invest in real estate in my experience - more often then not, they'll use a sale-leaseback if the property is coming along with the transaction. Nice way to quickly unlock some cash without having long-term exposure to RE.
Have seen your hypothetical play out several times. Assuming the rent is actually market, no issue signing up a lease (but Adj. EBITDA and purchase price will need to be burdened for the additional cost).
Typically accomplished via sale-leaseback. We don’t want to own the real estate, and are happy to lease it back from you at arms-length FMV. Is there a reason why you’d want them out within 6-12 months? We’d rather avoid the cost of moving unless we have to (growth, etc), but overall real estate is toward the bottom of the list of relevant priorities (except for certain assets / sectors)
Really appreciate the answer, makes total sense. In the situation I’ve observed, the seller had a couple of other businesses housed within the same building and there wasn’t much room to grow, so they wanted to free up some space. I can’t imagine that’s too common, but I guess things like that could pop up
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