Overview

Quick Takeaways

  • Mergers and acquisitions are a part of the real estate world, and successfully managing a merger requires deliberate leadership and due diligence.
  • If possible, managers should help in the integration and provide employees with as much details as possible.
  • Office culture plays a huge part in a successful merger. Avoid participating in the spreading of rumors and lead by example.

Source: Surviving and as a Manager During a Merger

While mergers and acquisitions both combine two businesses into one, the circumstances are often very different. Mergers are mutually agreed upon, while acquisitions are not always wanted, and sometimes even hostile. Company culture can play a huge role in the success or failure of a merger and acquisition.

The COVID-19 pandemic certainly affected mergers and acquisitions in the commercial arena. As the office industry was completely upended by working from home, coworking companies like WeWork joined ranks with more traditional companies like Cushman & Wakefield.

As companies join, both must do their due diligence in order to insure that everything is in place legally, and financially, but also culturally and physically (if in the office). According to the Harvard Business Review, 70-90% of mergers and acquisitions fail, and a lack of due diligence in examining office culture is perhaps an overlooked explanation.

There are many options when starting a new or merged business – you can form an LLC, an S Corp, or a variety of other business structures depending on your business needs and circumstances. The United States Government has many free and informative online resources for all business incorporation.

See References for more information.

References

NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require the member's nar.realtor login.


Quick Facts:

  • Twenty one percent of firms reported that the number of mergers and acquisitions for the firm has remained the same from 2011 to 2015 to 2016 to 2020.

Source: 2021 National Association of REALTORS® Profile of Real Estate Firms

  • Eight percent of REALTORS® worked for a firm that was bought or merged in the past two years.
  • Of the REALTORS® who worked for a firm that was bought or merged, 28% left voluntarily.
  • Of the REALTORS® who stayed on to work for a new consolidated firm, 74% say compensation remained the same, compared with 14% who say it increased.

Source: 2021 National Association of REALTORS® Member Profile

Mergers and Acquisitions: The Basics 

What is an Acquisition? (The Balance, Jun. 3, 2021)

Often, acquisitions are an agreed upon takeover in which the sale of a business is desirable for both companies involved. However, takeovers do occur – these are often known as hostile takeovers. The shares in the business being purchased are often bought for more than their current market value, and can be purchased with cash, stock options, or a leveraged buyout.

How Did the COVID-19 Pandemic is Reshaping the Merges and Acquisitions Space (Forbes, Feb. 3, 2021)

“There is no doubt that the pandemic slowed down mergers and acquisitions. There was a pause and, indeed, disruption. However, the pandemic didn’t wholly halt transaction activity, and in fact, the environment rebounded quicker than feared or anticipated. “

Merger vs. Takeover: What’s the Difference? (Investopedia, May 5, 2021)

While mergers and acquisitions both combine two companies into one, they are different in one very meaningful way. A merger is a mutually agreed upon combination of businesses, but an acquisition usually implies a takeover of one company by the other.

Real Estate Merger and Acquisition Activity

WeWork and Cushman and Wakefield are Forming $150 Million Partnership (The Wall Street Journal, Aug. 9, 2021)

“WeWork and Cushman executives feel that by teaming up, they can offer office-building tenants and landlords help in reshaping the office-building industry while addressing increasing pressure from employees for more flexible work arrangements. Already, some of the biggest American corporations have announced plans to allow some form of remote working for the indefinite future.”

Real Estate Sees Welcome Revival in M&A in 2021 (White & Case, Jul. 30, 2021)

“As real estate stocks have recovered, confidence has returned for real estate M&A dealmakers. Real estate deal value climbed almost fourfold year-on-year, coming in at US$44.2 billion from 18 deals (up from 16 transactions in H1 2020). A variety of drivers have supported the deal uptick. A year on from the first lockdowns, real estate dealmakers have been able to identify the most resilient real estate sub-sectors and quantify the impact on the sub-sectors most impacted by the pandemic.”

2021 Real Estate M&A Outlook: Balancing Opportunity and Uncertainty (Deloitte, 2021)

After a volatile year due to the COVID-19 pandemic, many mergers and acquisitions were abandoned or left in limbo. The commercial real estate sector is now dealing with “a stark dichotomy in operating fundamentals among subsectors and asset classes.” According to Deloitte, “warehouses, grocery stores, multifamily, health care, data centers, and cell towers have been affected differently than offices, hotels, restaurants, and retail, which have felt the brunt of the pandemic’s negative effects.”

Due Diligence

How to Make Organizational Culture Part of M&A Due Diligence (Gallup, Aug. 23, 2021)

According to Harvard Business Review, seventy to ninety percent of merged companies fail. While there are many reasons for this, company culture often plays a huge but overlooked role in the success or failure of a merged business. There are two main facets of company culture that are examined in this article; organizational culture and work style. By applying what Gallup calls “cultural due diligence,” companies may have a better chance at success.

Due Diligence for Mergers and Acquisitions Through a Cybersecurity Lens (Deloitte, Jun. 15, 2021)

“Over the past few years, cybersecurity has started playing a bigger role in M&A. Several acquiring companies suffered hefty losses as they realized the target company’s past data breaches only after completing the final deal transactions. This, in turn, resulted in significant financial fines and reduction in the target company’s overall deal value that could have been avoided if cybersecurity due diligence had been conducted at the initial stage.“

A Comprehensive Guide to Due Diligence Issues in Mergers and Acquisitions (Forbes, Mar. 27, 2019)

“Mergers and acquisitions typically involve a significant amount of due diligence by the buyer. Before committing to the transaction, the buyer will want to ensure that it knows what it is buying, what obligations it is assuming, the nature and extent of the seller’s contingent liabilities, problematic contracts, litigation risks, intellectual property issues, and much more. This is particularly true in private company acquisitions, in which the seller has not been subject to the scrutiny of the public markets.”

Business Formation: Choose a Structure

C Corporation, S Corporation, Sole Proprietorship, Partnership, or Limited Liability Company (LLC)? What are the tax, liability, and capital requirement implications of incorporating versus forming an LLC? The resources below offer a basic foundation in business formation considerations.

Understanding S Corporations (Investopedia, Jun. 10, 2021)

“S Corporation is a variation of a corporation within Subchapter S of Chapter 1 of the Internal Revenue Code. Essentially, an S corp is any business that chooses to pass corporate income, losses, deductions, and credit through shareholders for federal tax purposes, with the benefit of limited liability and relief from “double taxation.”

Partnership vs. LLC: What's The Difference? (The Balance, Jun. 7, 2021)

“A limited liability company (LLC) is a type of business legal entity that combines the liability protection of a corporation with the operations of a partnership. An LLC can have one or more owners, called members. Each member has a percentage of the equity (ownership) of the business.”

Seven Steps to Starting Your Own Corporation (The Balance, Jan. 5, 2020)

When starting a business, there are seven basic steps you need to follow; choosing a corporate name and address, selecting a state to incorporate in, selecting a corporation type, determining company directors, choosing your share type, obtaining your certificate for corporation, and processing and filing the incorporation.

Free Government Resources

Did you know that the U.S. Small Business Administration (SBA) provides a robust offering of free online and in-person courses, workshops, sample documents, monthly web chats, and FAQs to assist you in your business endeavor? It's true. Check out the SBA's website to discover offerings relevant to your needs.

The SBA’s Stay Legally Compliant topic page is great for orienting yourself with important steps to take mitigate risk when forming or reforming a business. The Write Your Business Plan topic page offers links to a diversity of materials, including free educational courses, video tutorials, checklists, and more.

The U.S. Federal Trade Commission's Guide to Antitrust Laws includes a section concerning Mergers. The Federal Trade Commission also maintains a Frequently Asked Questions about Merger Consent Order Provisions page

The National Association of REALTORS®’ Real Estate Business Institute (REBI – formerly the Council of Real Estate Brokerage Managers) offers courses on a variety of real estate brokerage topics. Visit the REBI website to learn about their credentials and course offerings

eBooks & Other Resources

eBooks.realtor.org

The following eBooks and digital audiobooks are available to NAR members:

Achieving Post-Merger Success (eBook)

Applied Mergers and Acquisitions Workbook (eBook)

Buying and Selling a Business (eBook)

Charging Back Up the Hill (eBook)

Exiting Your Business, Protecting Your Wealth (eBook)

How to Increase the Value of Your Company (eBook)

Merger and Acquisitions Basics (eBook)


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