For employees, the thought of their company being acquired by a bigger brand can be daunting. Will there be layoffs? Changes in management? No more free coffee in the break room? While real estate mergers and acquisitions often occur to save costs, they also happen to spark innovation and revive dying companies. In this article, we’ll explain what mergers and acquisitions are, why they happen, and provide you with some examples of recent successful M&A transactions.
A merger is when two companies of similar sizes agree to join forces. Another type of merger (“a purchase deal”) is when two CEOs agree that their companies should join forces and move forward as one. An acquisition is when one company purchases another. Though these terms are obviously different, they are often used interchangeably as “M&A transactions,” or “Mergers & Acquisitions.” For example, in the publishing industry, CBS Viacom decided to sell Simon & Schuster to Penguin Random House. Because Penguin Random House is taking ownership of Simon & Schuster from another company, that is considered an acquisition. Simon & Schuster ultimately does not have final say in this decision.
However, if Penguin Random House and Simon & Schuster were similarly sized companies and they decided that moving forward as a joint publishing house would create better business for both of them, that would be a merger because both companies would have equal power in how they move forward.
Competition and growth drive capitalism forward. If Company A has a competitor in Company B, it must compete by cutting costs and innovating. One way around this for Company A would simply be to acquire Company B so that they are no longer in competition with each other. This allows Company A to soak up the talent, profits, and innovations of Company B, and to become more competitive in the marketplace.
Mergers and acquisitions transactions are relevant in commercial real estate investing because in almost every purchase, the buyer will gain ownership or leasehold interest in at least one real estate property.
However, usually real estate in these deals have less significant value because real estate is usually not the main reason for the merger and acquisition. When property is involved, the acquiring company may need to evaluate the following from the acquired company:
Post-pandemic, Deloitte predicted that real estate mergers and acquisitions would see a significant uptick. 2020 saw fewer deals and more challenges. As the industry emerges from the downturn, we may see more opportunities for growth. Deloitte went on to suggest that the most M&A transactions in 2021 and on would be in the industrial, specialized medical office, and multifamily residential sectors.
Here are just a few that have already occurred:
As these examples show, real estate companies can and do acquire, merge, partner and invest with one another for their mutual benefit.
While not all mergers and acquisitions give companies’ employees the warm and fuzzies, the free market may benefit from them. Mergers and acquisitions can mean changes in management and layoffs. Ultimately, the goal is to increase the company’s bottom line and spark innovation through competition.
