How Increased M&A Activity Is Affecting Corporate Real Estate

Last year, merger and acquisition activity increased significantly, and experts expect the momentum to continue in 2022. Real estate is the second or third largest expense on a company’s income statement, making it a top priority during a corporate merger. Companies undergoing a merger or acquisition will not only look to consolidate a real estate portfolio, but they will also look at operations, leases and technology.

Rob Raymond, a managing director in the Real Estate practice at FTI Consulting, has seen real estate account for as much as 16% to 22% of general and administrative expenses. “It is a large target of synergy,” he tells GlobeSt.com. “From a physical footprint perspective, companies would look at redundant locations and consolidating headquarters.”

Cost is typically the primary metric that companies look at when consolidating a portfolio, but access to talent is also crucial. “Companies are also looking at talent in addition to cost. [A company might choose] real estate that is more expensive but will have better access to talent,” says Raymond.

After consolidation of redundant or excess space, companies will look to reduce operational costs related to real estate. “If a company is outsourcing facilities management and they are increasing the size of their portfolio, they will look for an opportunity to go back to those vendors and negotiate better pricing.” Likewise, Raymond says that companies are also reassessing costs related to leasing and facilities management technologies.

Work-from-home policies adopted during the pandemic are adding a layer to real estate needs during a merger. To start, the companies could have a disparity in cultures. “One company may be trying to return everyone to the office, while other companies might be empowering employees to work in a way that is best for them,” says Raymond. “There is always that cultural conversation that happens.” Companies need to figure out what employees need and what culture will best align with the workforce. In addition to employee needs, work-from-home has made it challenging for companies to assess their office space needs due to work-from-home policies.

During a company carve-out, there are also legal guidelines to follow when combining offices. For this reason, Raymond recommends a thorough legal review as early as possible, particularly when dealing with international footprints. “Some companies require employees to be physically separated, other companies allow employees to share the same space,” he explains, adding there are also issues of intellectual property to consider, even when companies can legal share a space. “Having that understanding as early as possible will really drive the real estate decisions.”