Why a first-time buyer of a manufacturing business should acquire the real estate along with the company.
Buying A Manufacturing Business – Why You Should Also Acquire The Real Estate
When acquiring a manufacturing company, first-time buyers often struggle with whether or not to buy the real estate. Allow me to explain in one word why you must do so. Control.
Consider the Worst-Case Scenario
In my view, it is a must for those buying manufacturing companies to control the real estate. To illustrate my point, let’s look at the worst-case scenario. Suppose the retiring Seller dies a few short years after retirement. The real estate is then controlled by someone who sees an opportunity for additional funds. When it’s time for lease renewal, they hold you for ransom, asking for an exorbitant increase. What would be the choices available to you? Sure, you could find another location and move, but the cost of moving machine tools can be exorbitant. Also consider the disruption to your business!
Are There Situations When You Should Not Acquire The Real Estate?
Manufacturing business acquirers should avoid buying the real estate when the current building can’t accommodate increased capacity and growth. Other considerations include a clean environmental bill of health.
The bottom line: if the building is “clean” and can accommodate growth, it should be acquired at the time of the business acquisition. Your chance of negotiating an appropriate deal will increase when it’s done in conjunction with the business purchase.