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Owned Real Estate

Over the past 22 years we have seen many structures utilized to maximize the value of owned real estate when selling a business. One structure stands out far above the others, for maximizing value.

Before explaining this structure, it is first important to understand two basics about the real estate of privately owned middle market aerospace and defense companies. First, often the real estate is owned by the family of the business owner and leased to the business, for estate planning reasons. Second, it is important to understand that the concept of value relates to the business combined with the real estate. For example, selling the buildings for an above market rate, but in turn getting a low multiple for the business, is potentially not a great deal for the seller. And, as another example, selling the business at a high multiple, but leasing the real estate to the buyer at a below market rate, is also potentially not a great deal for the seller.

By far the best structure that we have seen in 22 years, to maximize value, is to structure the sale of the business with complete flexibility with respect to the real estate. Accordingly, in almost every engagement today, we recommend allowing the bidders the flexibility to bid for the real estate in any manner they wish. If they want to buy your business and enter into a long-term real estate lease, let them bid accordingly. If they prefer to buy your real estate, let them make a bid for the company along with a bid for the real estate.

Once all bids are received, then work with your investment bankers and your tax professionals to analyze the combined net after tax proceeds to you under each scenario and assess which bid is better for you. By far this approach has afforded our clients the best outcome over the past 22 years, in terms of maximizing the combined value of their companies and their real estate.

Have a great day everyone!

William Alderman