Feature: M&A 2008? Taking your checkbook

The landscape for mergers and acquisitions has changed across all industries, and commercial-grade existent estate is no exception. In 2008, deals are probable to be more strategical, likely littler, and take less debt. But we’ll yet find plenty of deals.

We should visit depleted prices this year, sure enough, and more globalization as U.S. buyers make oversea, and autonomous wealth funds enthrone hither.

Banks are reducing down and not contributing as much to buyers. According to the Wall Street Journal in February, “The Union Reserve’s up-to-the-minutest survey of elderly loan officers shewed 80% of domesticated banks tightened up adding standards on commercial-grade existent estate loans in the past three months - the eminentest level since the question was first off invited 1990.”

No problem. In most cases, the people who will purchase this year aren’t going to banks. They have the money, and they’re searching the right-hand opportunity.

Individual equity

In late years, hedge funds and individual equity deals have been prevalent. What were these buyers looking for? They had cash to place, and they were unforced to drop nine and 10 times EBITDA to create a deal. They locomoted tight, took on risk, and (in some cases) got companies whose operations - like residential fixer-uppers - worked out to have that “money pit” feeling to them.

Parts of that equation haven’t transfered. Individual equity funds stock-still have cash to endue - but their risk profiles are decidedly exchanging. Prices are adding up down - more like five or six times EBITDA - and ascribable diligence is storming up. Sellers should be steeled oneself against cryptical, faithful review of their financials and their operations. Problems that might have run low unnoticed, or exactly colored over in old years, could conk or wipe out a deal in 2008.

SPACs

An going forth player in the M&A market in 2008 could be an average investor participating through an SPAC.

Limited Purpose Acquisition Corporations (SPACs) have existed since the 1990s, particularly targeting technology, healthcare, media and a few other blue-ribbon industries. SPACs are publically merchandised investment vehicles that permit shareholders to participate in the type of acquisitions more often than not performed by secret equity firms. These vehicles blend public with no other purpose than coming up a merger or acquisition to complete with the proceeds of their IPO.

Since 2003, SPACs have been on the rise. According to Dealogic, a provider of worldwide investment depositing and analysis, 65 SPACs plunged last year to lift close to $12 billion. These offerings interpreted 22% of all IPOs, and a important increase from the 37 started in 2006.

Unlike individual equity plows, anyone can grease one’s palms shares in a SPAC. Because they are public investment vehicles, they are shaped. Specific time frames are required for an investment to be seen and consummated, with majority shareholder approval. But like to secret equity, their deals don”t require debt. Once the credit markets rally, these deals may be candidates for refinancing.

Sellers might bump advantages in being acquired by a SPAC. In these deals, the company’s management is granted to proceed running the business and benefit from the upside of public market participation, including the access to capital. Typically the board will admit the original management team as good as members of the SPAC team.

Be persevering - very persevering

When purchasing a company whose basal asset is commercial-grade real estate, location, location and location continue primal factors. But in this economical climate, data, data and more data - referable diligence - should be top of mind for likely buyers. Sharper eyes and more targeted imputable diligence are certain to characterise deals of any type in 2008.

If you’re corrupting, catch comfy with:

• All aspects of leases

• Tenant turnover - and issues that might be making it

• Indocile expenses, like existent estate taxes and insurance, and whether these are capped in leases.

• All fiscal data

If you’re dealing, you’ll desire to create sure your operation doesn’t show weaknesses in some fundamental areas. Be particularly thoughtful to exact and over documentation regarding:

• Agreements already in place, like shareholder agreements, trust agreements, buy/sell agreements, and right of first refusal agreements.

• Debt arrangements, guarantees or indemnification between officers, directors and the company.

• Contracts with suppliers, clients or employees.

• Loans or other debt arrangements, credit agreements or fiscal guarantees.

• Litigation, whether imperiled, pending or concluded.

As the economical situation develops, we’re potential to visit more changes in character of M&A activity in the commercial-grade actual estate market. But it appears clean-cut that 2008 won”t be a quiet year.

Kara Stearns Sharp, CPA, is the director of advisory services for Kaufman, Rossin & Co., a CPA firm with offices in Boca Raton, Fort Lauderdale and Miami.

Clark Forges Ahead with $134M Contract for Student Housing Project in L.A.
Financing Closes for New Jersey Retail/Office Center
A condo buyer who agreed to pay $53.5 million for two New York City penthouse apartments wants his money back