4 key drivers of a successful real estate M&A transaction

The real estate sector is the largest employer in India after agriculture and is forecast to grow dramatically over the next decade. Little wonder that it attracts a lot of interest insofar as mergers and acquisitions are concerned.

However, for an M&A deal in the real estate sector to be successful it is essential to weigh and, if possible, eliminate the inherent risks associated with such transactions. Other drivers for the success of a deal include maximization of value, speeding up of operational strategy and successful integration, post deal.

Risk elimination

From the acquirer’s perspective, it is essential to assess the leasable/fair market value of the stock of unsold property, especially in a declining market. Other aspects that must be examined include the condition of the target company’s real estate assets and the capital required to upgrade/maintain them; legal issues associated with the target company’s promoters or any of its land banks and buildings; green and other approvals applicable to land parcels in specific zones; terms of lease in cases of leasehold land, etc.

From the target company’s perspective, it is important to assess whether the acquirer has the means to ensure the deal is fully executed, especially if the acquiring party is leaning heavily on leverage.

Ashoo Gupta is a partner at Shardul Amarchand Mangaldas. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official view or position of the firm.