A Company's Real Estate When Purchasing Another Company - to Buy or Not?

Many times the business has real estate. Most often, the real estate is commercial, such as a factory or office. The question arises - when you buy a company - what should you do with the real estate - buy from the seller of the business or not? Alternatively, the selling company's problem is selling to a third party. Not sell? Here are the answers.

Ownership of the Commercial Real Estate

The use of commercial assets can be under the ownership of the business or lease.

If a company leases the business's real estate, whoever buys your business will take over the lease once the deal is done.

But what are your options if the company you are purchasing owns the rights to the real estate?

In principle - the buyer has two options - to purchase or not to purchase the company's real estate assets, that is - to buy and continue to use the company's real estate assets or not to purchase them.

Continue Using or not to Purchase?

The purchasing company has to decide - to purchase the real estate assets and continue to use them or to give up their purchase. How can it make an informed decision?

The answer is simple - what is the reason for the company's purchase, and what does the company intend to do after the purchase?

If the buyer acquires the company because of its name, because it is a brand, and not because of its current activities - he will most likely not need its real estate assets. In this case - he will not purchase them.

If the buyer purchases the company because of its products - he should check whether he can produce the company's products on his production lines or whether he does not have suitable production lines. Suppose he finds that he can make the products in other factories in his possession. In that case, he will not have to purchase the property where the company's factories are located before the purchase.

If he cannot produce the products in another factory he owns, he will have to purchase the company's factory.

What about the building where the company headquarters is located?

The company headquarters can sit in a separate building. The company may have a building where the management, human resources department, etc., are located. Many times during the acquisition of another company, the management headquarters will be cut, and the existing structure is no longer needed. In this case, the company will not purchase the building.

Conclusion

The question of whether a company that acquires another company should purchase the real estate assets of the acquired company depends on the question - what is the purpose of the purchase, and does it have real estate that can help with the company's day-to-day operations? If you are about to purchase a company, You can evaluate it in 30 minutes. Try our intuitive ai based business valuation software or our business valuation calculator, or you can contact us for free advice or schedule a demo.