Most manufacturing business owners coming to my firm to represent them in an M&A transaction own the building their business occupies. A common question they have is:
“Will a buyer of my manufacturing business want to acquire the real estate?”
What drives this decision for manufacturing business buyers is the question of capacity. They will seek to understand what, if any, excess capacity exists in the business. Said differently, how much can the buyer grow the business before they have to worry about expanding the business or moving it?
The larger and more difficult it is to move your machine tools, the more this question matters.
Generally speaking, if the buyer perceives the answer to the capacity question to be positive, more often than not, they will seek to acquire the real estate.
This is why I tell manufacturers not to sell their real estate before putting the business on the market. Your best real estate acquirer will be the buyer of your manufacturing business, with few exceptions.
Exceptions do occur. We had one potential client who was approached by Amazon for the development of a distribution center. What they were willing to pay would not have made sense for the business acquirer.
Often, the availability of real estate helps the business transaction when the buyer is using an acquisition loan. The bank has additional collateral in the real estate, which they prefer, and the buyer can often get a blended loan rate (lower interest rate) if the real estate is being acquired.
Whether your real estate is held in the same corporation or a different corporate entity, the same thing holds true. The buyer of your business will want your real estate if there is excess capacity. Getting a Fair Market Value on the real estate is never an issue when the buyer is fully engaged in the acquisition of the manufacturing company.
I understand that some owners must do a sale/lease-back for financial reasons. However, if you can wait, you should. Many high-quality manufacturing business buyers want to control the real estate and will not engage in the business if they can’t buy the real estate, too.