Business and property – together or apart?
Wednesday, June 27, 2007/
Dividing the property from the business is impossible for some enterprises.
The recent Myer Melbourne store property deal has swung the spotlight back on to the issue of whether real estate should be included in the sale of a business or sold separately.
With property prices booming and business prices under pressure, what is the best way to sell a business that has both?
Those arguing for its inclusion say that it makes for a cleaner transaction and broadens the level of interest and therefore the number of potential buyers.
Those that argue against inclusion point out that the required investment is significantly higher and that this may limit the number of buyers able to pay. In many respects it comes down to the significance of the property in the ongoing operation of the business.
In the Myer example, the majority of the business is run on third-party premises with long-term lease arrangements in place. The few properties that were included were significant in value, but not perhaps enough to tempt a non-retailer into buying the overall business.
The successful purchaser has moved swiftly to move the property out of the business, effectively offsetting the purchase price by about 50%. A number of commentators believe Coles would have done better by going through the same process itself before the sale.
However a critical question is whether, as the vendor, it could have negotiated the same terms with a property developer as the new venture has been able to as the purchaser.
In agriculture, the property is generally sold separately to the stock, plant and equipment – but not always. Wineries and other integrated agri-businesses are often sold as a going concern.
A key question then is how much the business is co-dependent on the property for its ongoing success. For example a panel-beater can be just as successful if it moved down the road, however a motel cannot operate without its premises.
If the business and property are to be sold separately, then a key issue is which do you sell first. Both have their advantages. By selling the business first you can negotiate appropriate leasing arrangements as part of the sale process.
These can then be included in the sale of property agreement. If the property is sold first, then the potential business buyer can negotiate directly with their ongoing landlord as part of their purchase agreement. You should also consider the tax and stamp duty considerations of these scenarios.
At the end of the day, one combination and method may get you a better overall price, while another may give you a better net result. The reason the debate continues is there is no clear “best” option to be applied across the board.
Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations
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