The real estate question

By Gary W. Stansberry

If an acquirer plans to retain the facility of the target business, through lease or purchase, the facility should be environmentally compliant and be of a size and configuration suited for current business operations. Ideally, it should also allow room for future growth. A poorly laid out facility will contribute to increased production costs—especially labor.

If an acquirer perceives the need to relocate a business, those relocation costs will reduce the purchase price. Any increase in occupancy expense (increased rent or utilities) will also be deducted from the ultimate purchase price.

Geography of the new location is a factor. Can a suitable location be found so the current workforce can be retained?

Acquirers generally do not like to buy real estate, but if they do it has to be considered and evaluated as a stand-alone investment. Stand-alone real estate investments should generate a 7–10 percent annual return (versus the acquisition cost) in facility rent expense on a triple-net basis. An acquirer will carefully evaluate the business to see if that type of return can be generated and the business still be run in a profitable manner consistent with industry standards.

Gary Stansberry is principal of The Stansberry Firm LLC and specializes in business sales, fair market business valuations and positioning businesses to increase their value.