Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
Management of Mergers and Acquisitions: Real Estate
Perspective
Ewa Gołębiowska* and Wojciech Nasierowski**
This article addresses the acquisition process manage-ment in the real estate market.
Issues related to succes-ses and failures of acquisitions in the real estate market are
presented based on literature survey, or research, in this area, and the experience of
the authors. Our conclu-sions allow us to state that the current developments in the
real-estate market in Poland form a sound base for mergers and acquisitions in this
economic sector and may strengthen the market positions of companies that operate
within real-estate. The article also presents the results of a sample research
conducted on the property market in 2013 – 2015.
1. Introduction – Mergers and Acquisitions in the Real-Estate
Sector
The property market is an important economic element, generating approximately 5
to 7% GDP (Maczynska, 2014). It affects owners and investors and satisfies
numerous needs of individuals and businesses. The property market, especially after
the 2009 – 2010 crisis, saw many bankruptcies and changes in business operations.
Due to the size of Merger and Acquisition (M&A) transactions, they are considered
very complex processes that are not always completed successfully (Mackowiak,
2012, pp.119-134). In M&A transactions, decision-making can be like embarking on a
difficult path of enterprise development (Zajac, 2015) that does not always achieve
the initially estimated value growth for the stakeholders).
The real-estate (RE) market is diversified. Organizations that operate there differ in
terms of size, location of activities (local, state wide, international markets), the
scope of operations (residential/commercial properties, construction, renting,
management of financial assets, property management, etc.), and the form and
origin of the capital involved. Therefore, generalizations regarding strategies in this
sector are perplexing, and the scope of operations of firms may be a mixture of any
of the above-mentioned areas of operation. Yet, companies operating in this sector
have some commonalities:
A very high value of assets in relation to number of employees (probably
second to the financial sector);
Problems related to any M&A transactions, also linked to frequently undefined,
or poorly defined, ownership rights.
There are also some legal differences when RE related transactions are examined,
that originate from differences between common law, and civil law. Moreover, from a
legal point of view, as an example, companies that operate in Poland face an
additional problem that has inheritance and taxation implications, and thus related to
credit policies.
________________________________________________
* Dr. Ewa Gołębiowska, University of Social Sciences (SAN), Lodz, Poland
** Wojciech Nasierowski, University of Social Sciences (SAN), Lodz, Poland, and University of New
Brunswick, Faculty of Business Administration, Fredericton, NB, E3B 5A3, Canada, e-mail
nasierow@unb.ca (corresponding author)
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
The M&A process may be represented as a function:
X – purchasing organization’s value
Z – acquired organization’s value
Y – expected value after M&A
Y = X + Z + “α”
Where it is expected that “α” should be positive (though it frequently is not) “α” deals
with many elements, but it is mainly an indication of operation and financial synergy
after M&A. The value of a company after M&A is expected to be greater than that of
the sum of the constituent firms, where the improved performance of the combined
firms may come from:
Operation synergy can result from:
Improved management: two or more firms combined often provide
complementary managerial expertise, and can develop fresh ways to utilize resources.
The skills, both technical and managerial, of the original business management
increase the possibility of turning acquired companies into profitable operations.
Economies of scale: may be achieved in the areas of purchasing or inventory
management, and may also be present in other functional areas of a business such as
advertising, distribution, service networks.
Economies of scope: are said to exist when joint production costs by a multiproduct/service firm are less than the combined costs of producing those goods in two
single-product firms. Economies of scope may also arise from sharing know-how or
other intangible assets, or elements of productive
Financial Synergy can be attained from the financial capacity, lower cost of
capital due to larger scale of operations, more favourable borrowing charges, and
taxation advantages.
Organization value during the acquisition process is not based exclusively on the
book value of its shares (eg. Wilimowska, 2008, p.18). The acquired organization
value includes also intangible assets that requires a separate approach. Analyses of
M&A in the real-estate sector indicate that companies concentrate on the integration
of material assets such as IT systems and synergies related to costs (expenditures)
– frequently at an expense to customers. Often they ignore the integration of
intangible assets such as people, processes, knowledge, and structures. However,
aspects related to intangible assets as the basis to the estimation of the value of a
‘new’ company (due diligence DD) contribute to successes in almost 50% of
transactions. In order to achieve the expected results from M&A, companies should
pay attention to the integration of both material and intangible assets, and adequately manage risks associated with these transactions. In the context of acquisitions,
opinions are frequently expressed that the changes represent low value for both the
acquired and the acquiring organizations (Gąsior, 2010, pp107-117). Research
results by Hay Group relative to M&A indicate that several such transactions do not
lead to the expected market value and planned increase of profits (Globalny Raport
Hay Group, 2015).
In this paper we intend to show, based on available research results, basic elements
of successes and failures in M&A in the real-estate sector. We do not formulate a
hypotheses that can be empirically verified. We accepted verification of several
hypotheses is warranted, yet the resources available are not sufficient. In the second
part of this report, results from literature on the subject are presented. In part three,
possible reasons for failures and acquisitions (and contributors to such effects), and
typical strategies in M&A discussed. These considerations are summarized with a
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
presentation of an investigation into developments in the restructuring of the Polish
Real-Estate Holding (PHN S.A) – a company formed in 2011. The final part of the
paper presents conclusions, and provides suggestions for further studies pertinent to
the real-estate sector.
2. Literature Review about Mergers and Acquisitions (M&A) in Real
Estate Sector
Successful M&A that contribute to a growth in the value of the merging entities are
not frequent cases in real estate industry. The few transactions completed
successfully depend to a large extent on the skills and attitudes of managers in
charge of the enterprise, appropriate preparation and involvement at all stages of the
process, and awareness of the dynamics of changes and their consequences for the
organization. M&A cause numerous effects in organizations and their environment,
and an unequivocal identification of the factors determining their success is not easy.
A well-prepared and conducted process may bring determined benefits for all parties
involved: acquiring companies, acquired company and their stakeholders.
It is accepted in this paper that a success in mergers and acquisitions in real-estate
is achieved when the value of “α” is greater than 0. The keys to such success are
related to synergies in operations, increases in production capacity, reduction of
operation costs, savings in marketing and HR, and increased size, which all
contribute to more cash flow and an increase the value of the company after the
fusion. ‘Tax related’ optimization is also important (Kardys, 2002, p.26). Transactions
with a negative value of “α” are considered a failure in M&A in the real estate. The
following may be reasons for such a situation: no synergies, inability (or lack of
knowledge) to create a compatible organizational culture, and/or creative accounting
on the side of either of the firms. It should be noted that there are a variety of risks
and costs associated with any M&A transaction due to the need to get rid of
unwanted assets, broken contracts, bad publicity, labour disputes. Without a proper
assessment, these costs may result in a negative “α” value.
Suggestions presented by DeLon (2001, pp.221-252) may serve as a guide for
determining the parameters of efficient M&A in the real estate sector. These include
a profound (detailed, adequate) preparation of the transaction, and skilful
implementation of the transformation process. Mistakes in these areas may be
exceptionally costly (Chrominski, 2010, p.18). Yet, these suggestions are very
generic/general. The results of the studies presented below demonstrate common
conclusions containing data on frequent failure of the transactions, understood as a
decrease in the entity value compared with its initial value.
A. T. Kearney (in. Chrominski, 2010, p18) analysed 115 multi-billion mergers
completed across the world in 1993-1996. The results indicated that 58% of the
transactions failed to bring major benefits to the shareholders in terms of material
returns in the form of dividend or increased share prices.
Mercer Management Consulting studied mergers from 1990-1996 and concluded
that almost half of the transactions generated losses for the shareholders (Bruner,
2002).
Research conducted in 1988-1996 by Mitchell/EIU in 150 companies showed that as
much as 70% of the transactions ended in failure (Rankine & Howson, 2008, p.18).
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
PWC evaluated 97 cases of transactions concluded in 1994 - 1997 for a value equal
to or exceeding 500 million dollars and found that 2/3 of the acquiring companies
recorded a decrease in their share value when the transaction was announced
(Wiadomosci … 2015).
Research conducted by Deloitte showed that in approximately 60% of M&A
transactions the assumed growth was not achieved and the same percentage of
transactions ended in a failure (Plociennik, 1999, p.19).
Research conducted by KPMG in 2000-2001 on a sample of 120 companies gave
the most optimistic results, indicating that only 31% of the transactions failed
Rankine & Howson, 2008, p.18).
An analysis of the results presented above prompts a few questions: Why do so
many acquisitions fail? And What are the strategies used in M&A in RE
3. Possible Reasons for Failures in M&A in Re Sector
We have decided not to present hypotheses relative to M&A in the Polish RE sector,
so consequently no specific “statistical” type approach is presented. The RE sector is
highly diversified and not many reports provide details related to results of such
activities, and the collection of data is almost impossible to independent scholars.
Thus, we decided to Instead outline stages in typical RE transactions, reasons for
successes and/or failures of such ventures, and strategies used.
3.1.
Stages in RE transactions
From a management perspective, the parameters for effective M&A should be
determined and conditions that are required for a transaction to succeed should be
defined. It is important to formulate the planned process carefully and to conduct it
skilfully and efficiently. This may be conducive to avoiding errors that can prove to be
extremely expensive in the capital or real estate markets (Chromiński, 2010, p.18).
Few reasons explaining the failure of this type of transitions can be formulated.
These include:
(i)
Preparatory stage
The preparatory stage concerns the decision-making process, that is, the organization development direction, strategic goals, and the choice of contractor. Errors in this
area lead to an overestimate of the benefits that could be achieved through synergies. The absence of reliable data and information about the contractor, as well as
excessive optimism from managers hoping for maximum benefits from the
acquisition with minimal expenditures), become the cause of future problems.
(ii)
Negotiation stage
The causes of failure at this stage concern the valuation of the acquired organization
and the transaction financing sources. An important cause of an excessive price for
the acquired organization during negotiations is an incorrect valuation of tangible
assets (including real estates) and an overvaluation of intangible assets. Problems
also arise with incorrect identification of the costs involved in restructuring and
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
integrating the different organizations. The choice of payment for the acquisition (the
transaction financing sources) is determined by the possibilities of access to the
financial market and valid legal and tax regulations (Stradomski, 2009, p. 394).
(iii)
Integration stage
At the stage of integrating two organizations problems appear at the actual merger of
two diverse organisms composed of people, IT systems, internal rules and
processes, and material environment. Even when a complete integration schedule is
developed in detail, unexpected events may occur, e.g. lack of understanding on the
part of the employees, resistance to change, loss of the best employees or
managers, or pressure from external stakeholders, including clients. The underlying
causes of failure at the integration stage are differences in corporate cultures,
structures and systemic solutions, techniques and technologies used. Lack of
understanding combined with haste lead to incomplete integration and maintenance
of organizational divisions in the newly established entity.
3.2.
Possible Contributors to Failures of M&A Transactions in RE Sector
The key element at the planning stage is that the acquiring entity has precisely
defined goals that result from its adopted development strategy. When an
organization development strategy is missing, the use of a market opportunity will
not contribute to the success of the project. For each company, it is important that
management have a few organization development scenarios and to select the
course of action appropriate for the situation. Acquisition activities should follow from
the adopted strategy and managers’ individual characteristics. Specification of the
expected synergies and of the acquisition implementation plan may help to reduce
the risk of failure. This can be achieved, for example, with a Due Diligence (DD),
which may be a voluntary permission, at times associated with legal obligations, to
investigate a business prior to signing a contract. The theory behind DD holds that
performing this type of investigation contributes substantially to informed decision
making by enhancing the amount and quality of information available to decision
makers.The procedure, which allows the prospective investor to become acquainted
with the object of acquisition from different angles and effectively improves bid
credibility. The transaction’s success depends on good preparation by the parties.
DD analysis is of key importance for the acquisition process and is treated as a
significant factor determining the success of the transaction.
Problems with integration are also among the key factors hindering the transaction’s
success. What can minimize this risk? Appropriate communication between management and employees is important, since they determine the operations of any
organization. The right employee attitude allows changes to be introduced, whereas
non-acceptance by employees of the changes causes disturbances in all areas.
During the acquisition transaction it is important to establish a project team. This will
not only improve the process, it will also involve the senior managers in moving
towards a quick and positive conclusion so that the newly established organization
can begin to pursue a new strategy.
3.3.
Other Strategies in RE Transactions
Whereas M&A are classified as a grand strategy, they may serve also other
purposes. One can also look at the issue of M&A in the RE sector from the
perspectives of horizontal integration, related and unrelated diversification, and
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
divestment. Comments on how these strategies may pertain to the RE market are
provided below.
Horizontal integration is a grand strategy based on growth through M&A of
businesses that operate in the similar segments of real estate industry. This strategy
has the potential to provide increased benefits through economies of scale, expanded
human skills and capital resources, reduced competition, and access to new markets.
This strategy can be also used when a company:
Looks for an opportunity to expand the real-estate related offerings to other
established markets, and to gain access to new resources;
Lacks key competitive strengths, or has insufficient economies of scale to
achieve cost efficiencies. The firm will then focus on M&A that will provide these
elements in anticipation that it will enhance a competitive edge quickly.
Firms are attracted to horizontal integration due to its moderate risk. The success of
expansion through M&A generally depends on assessing the capabilities of the
acquired company. Yet one must also balance the benefits of moderate risk generated
through horizontal integration against the risk associated with over-commitment to one
sector of the business. The lack of diversification in a stable environment is not a major
threat: in a turbulent environment, diversification can be a better option. An increased
commitment to a single type of business may results in a vulnerability to fluctuating
economies, technological change, and in particular the high switching cost associated
with responses to such changes. As the company’s size increases, control and
management of organizational performance becomes increasingly complicated. The
resulting decrease in competition due to horizontal integration (monopolization) leads to
higher prices for consumers and fewer substitute solutions. One of the key
disadvantages of this strategy corresponds to the ability to manage M&A.
The success or failure of an acquisition depends on acquiring the right company. A
verification whether “it is the right” company can be achieved through DD, careful
planning, good management, choosing the most appropriate integration method, and
maintaining the best strategic fit. M&A require managerial skills in the post-M&A period
to develop the necessary synergy between involved firms. Organizational culture and
the acculturation between separate and often unique organizations are reviewed.
Acculturation addresses the different ways the culture, organizational practices and the
systems of two companies can be combined.
M&A may as well exist then when the root strategy is oriented on diversification.
Unrelated diversification, although it might seem to occur in the same sector – RE in fact it may deal with very different sectors of operations. Unrelated diversification is
an attempt to operate with more than one distinct line (sectors) of operation. A firm with
high market share and cash flow in one sector of real estate industry can use excess
profits to subsidize other sectors with high growth opportunities. A strong financial
position can also allow a business to take advantage of attractive acquisition
opportunities that enable growth. Firms also engage in unrelated diversification when
they have an unfavourable market position in terms of sector attractiveness and
competitive position: then this strategy is referred to as “defensive diversification”.
Firms that can successfully reduce exposure to the business cycle through diversification are characterized by a lower variability of profit than non-diversified firms (Amit &
Livnat, 1988, p. 603). Large firms can subsidize divisions where competition is strong
through excess profits from other sectors in which they have substantial market control
and high levels of cash-flow. It is important to know what types of resources are in
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
excess, namely internal, external, financial, physical, and so on. This knowledge can
provide firms with information where to diversify, and as result gain a competitive
advantage.
There may as well be tax benefits that arise from taking on new debt in the case of an
acquisition. New debt may be issued because diversifiers have a lower probability of
bankruptcy and can therefore increase their debt capacity (Amit & Livnat, 1988, p. 593).
A company may also gain from reduced financing costs (due to lowered bankruptcy
risk or internal financing arrangements), increased administrative efficiencies, or better
human capital. A danger associated with unrelated diversification is its effect on stock
values: "Specifically, firms that have made acquisitions that reduced their stock values
tend to become takeover targets, while firms that have made acquisitions that
increased their value do not. Furthermore, acquisitions associated with abnormal stock
price declines tend to be divested, either in subsequent ‘bust-up’ takeovers or during
and following subsequent takeover attempts" (Mitchell, 1991). This reinforces the
importance of acquiring a profitable firm in any diversification. The threat of takeover
can induce defensive restructuring and save a firm from being acquired. This could
happen by divesting the recent acquisition that caused the firm’s stock value to decline.
Similar advantages may occur when the company accepts Related Diversification (or
Concentric Diversification) through M&A. in this case a company M&A encompasses a
distinctive, but compatible, business with the strong possibility of creating
complementary strengths (or reducing weaknesses) in the markets and functional
areas of the involved firms. This is often done by making an investment in a related
area that allows for broader and better market coverage and customer responsiveness
(usually reflected in growing market share or power); lower costs in many functional
areas; and greater synergies in management. "A firm’s profitability can be enhanced (or
reach a premium) through related diversification into those areas that drew on some
common core skill or resource" (Rumult, 1982). As well, Amit and Livnat (1988, p.99)
concur that "... firms which diversify into related businesses have, on the average,
higher profitability than non-diversified firms."
Related diversification often allows a firm to increase the breadth of offerings; more
comprehensive marketplace coverage and can even out the cyclicality of sales and
earnings across a diversified but related areas of real estate operations. The combined
operations produce synergies that improve efficiency, and are likely to have increased
profits as compared to those that do not. This strategy is among the more successful
strategies in attaining improved performance as measured by increased profitability.
Related outcomes such as economies of scale and increased market power (over both
buyers and suppliers) are often observed. This strategy seems to succeed best when
firms have somewhat similar customers, complementary products, and related
marketing strategies and technologies; in other words, when there is an apparent or
potential compatibility. The risks of this strategy stem from acquisition, in which
incompatible managements find themselves at odds and conflicts arise that negate the
advantages mentioned above.
M&A approaches can also be explored from the viewpoint of the acquired company –
which follows a divestment approach. Divestment involves the voluntary sale (as
opposed to takeover bids) of a part of a company for cash, securities, or some
combination thereof to other corporations, investor groups, or managers of the
concerned unit. Divestment is designed to maximize return on investment by
concentrating on areas of corporate expertise. Divestment may have negative effects.
Bad divestment can cause share price to decline in the long run. If the market
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
perceives that management is selling off companies as a ‘quick-fix’ for an existing
problem, a divestiture can hurt stock prices. Companies should not divest in order to
get rid of an unprofitable operation, defend against a hostile takeover attempt, get out
of a capital intensive industry, avoid legal or regulatory difficulties, exploit tax benefits,
fool the capital market, or do what everybody else is doing.
4. An Example Transaction in the Polish Re Market
There are not many descriptions of effects of ”big” RE transactions in the Polish RE
sector. Yet, the Polish RE market had been gaining more attention recently, thus
some information about this market may be very interesting. Somewhat summarizing
observations about stages in RE transactions, reasons for failures, and possible
strategies (assumptions) behind such transactions, we have decided to present a
“mini case” about acquisitions of organizations that belong to groups owned by the
Polish State Treasury. These acquisitions contribute to the enhancement of
economic reforms (The City …., 2015). Within this area of examination of the
subject, we present an example of PHN company, the stock exchange firm,
established in 2013. This company was restructured from the state owned enterprise
oriented on anything, into a company that serves needs of diplomats and foreigners.
It is one of the examples of restructuring within real-estate in Poland that allows to
gain a substantially strong market position.
M&A have been the fastest way to achieve dynamic changes and obtain a significant
market position. They constitute an alternative solution for extensive growth to
internal implementation of a strategy that is reliant on resources owned by the firm.
M&A activities of this type have been present in the Polish market since the
beginning of the country’s economic transformation in the 1990s. An example of
entities that underwent privatization through the capital market is companies
operating in the real estate market. Acquisitions attract a lot of interest in the capital
market. Institutional investors are interested in acquiring various entities, including
those operating in the real estate market. Capital investors exert major influence on
the competitiveness and development of organizations and entire sectors of the
economy (Finanse … 2015). A similar trend has been observed in the property
market for a few years (DTZ, 2015).
Against the background of the above-mentioned globally conducted studies, it is
worth quoting and comparing the results of Polish M&A transactions. One interesting
case is that of Polski Holding Nieruchomości (Polish Real Estate Holding, PHN).
Polski Holding Nieruchomości S.A. is made up of companies with long-standing
tradition and ample experience in the property market. The company combines 50years experience of specialists in construction, engineering, architecture, and real
estate management with the provision of comprehensive solutions for the industry,
such as integrated services and products, real estate management and
administration, office space lease, investment development, and trade in real estate.
PHN S.A. (previously PHN SA Group) was established on 25 March 2011 through a
merger of Dipservice w Warszawie S.A., Towarzystwo Obrotu Nieruchomościami
“Agro” S.A., Argo Sp. z o.o., Składnica Księgarska Sp. z o.o., Kaskada Sp. z o.o.
and COBO Sp. z o.o.; as well as ownership of stakes in Intraco S.A., Budexpo Sp. z
o.o., Dalmor S.A., Wrocławskie Centrum Prasowe S.A. The core business of PHN is
related to the real estate sector. In 2013 Polski Holding Nieruchomości S.A. (“the
Company”) underwent the second stage of transformation with further privatisation
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
and successive acquisitions of stakes in State Treasury companies. As of 5 March
2015 the State Treasury held approximately 70% of the Company’s shares.
Table 1: Ownership Structure as of 9 March 2015
Number
of % of votes at a general
shares
meeting
State Treasury
32 655 617
70.25%
ING PTE SA
2 342 475
5.03%
Others
8 385 911
24.72%
Total
43 384 003
100.0%
Source: prepared based on Warsaw Stock Exchange quotations as of 5 March 2015.
The share price fluctuations over a few years presented in graph 1 indicate a rather
modest increase in the share value of 8.31%. It is not a high investment return rate
for investors in a period of a few years. These statistics confirm the argument that
not every acquisition or merger in the case of PHN was a complete success.
Obviously, with low inflation and low interest rates, share price growth by over 8% is
a positive result, yet it is not fully satisfactory for investors.
As a result of a change in ownership structure, the Company and the State Treasury,
as the owner, are seeking a strategic investor with appropriate industry experience,
expertise, and qualifications. The company took steps towards gathering the
necessary information that would allow it to conduct the due diligence process, or a
limited examination of the Company. For that purpose the Company made a Virtual
Data Room (“VDR”) available to prospective investors where the documents
necessary to conduct the due diligence were available. The above actions taken by
the Company are related to the possibility of the materialisation of the intention
described in the issue prospectus, which is selling the Company’s shares by its
Dominant Shareholder, the State Treasury.
The PHN Group is one of the largest entities in the Polish commercial real estate
sector in terms of its portfolio value. At present, the Company has 140 properties and
approximately 700 ha of land throughout Poland (incl. in Warsaw, Wrocław and TriCity). PHN has long-standing experience in both real estate management and
development projects.
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
Graph 1: PHN quotations 13 February 2013 – 6 March 2015
Source: Continuous quotations at the WSE as of 5 March 2015.
Reference quotation: PLN 23.60 (13 February 2013)
Start date: 2013-02-13
End date: 2015-03-06
Change: 8.31%
Since 13 February 2013, PHN has been quoted at the Warsaw Stock Exchange. The
opening price was PLN 22.75 per share. As a listed company, after the acquisitions
PHN developed a new long-term strategy which aims at building company value
through optimal use of real estate potential for client needs, changing the investment
portfolio structure to ensure a high return on investment, involvement and
professionalism of managers and employees, as well as respect for the environment.
After completing the restructuring process, involving a change of the Group
structure, real estate allocation to SPV, centralization of management functions at
the holding level, and employment reduction to approx. 100 people by the end of
2015, the Company will focus on optimization of its real estate portfolio and
implementation of new solutions aimed at maximizing its economic efficiency.
Further optimization of the property portfolio assumes the completion of current and
planned development projects, finalization of the disinvestment program, and new
acquisitions to the property portfolio. The Company will manage its assets efficiently,
focusing on maximization of income and on the quality of client relationships. It also
intends to engage in the selective development of activity in the housing market.
Moreover, the Company intends to conclude opportunist M&A transactions that
increase its portfolio profitability, manage real estate for foreign partners, and run
“special projects” targeted at new sectors and client groups.
Proceedings of 9th Asia-Pacific Business Research Conference
5 - 6 November 2015, Bayview Hotel, Singapore, ISBN: 978-1-922069-87-0
In order to ensure the success of PHNs planned mergers and acquisitions, the
following deserve particular attention (Coopers&Lybrand study in Sudersanam
1998, p. 240-241):
 Development of detailed integration plans and definition of their
implementation schedule,
 Clear definition of the goal of any planned acquisitions,
 Cultural alignment of the companies involved,
 Maintenance of good cooperation with the management of the acquired
companies,
 Obtaining the latest information about the acquired company and its industry.
5. Observations and Suggestions
Successful M&A that contribute to an increased value of joint enterprises are not
very common in the real-estate sector. M&A also cause several effects to their
environments, though the identification and assessment of these effects are not
easy. However, results of further examination of experiences from real-estate (a very
diversified and complex sector) may provide valuable examples to companies that
operate in other economic sectors.
The real-estate sector, especially in times of globalization of financial markets,
becomes a very important market in terms of long-term investment. The attention
paid by foreign capital in the real-estate sector is, not surprisingly, very high. The
substantially reduced barriers to entry to the markets in Europe, because of
European Union integration, the development of many commercial sites, and a
dynamic growth of residential investments all contribute to the inflow of foreign
capital. However, beyond these opportunities, equally important is know-how: how to
operate on this market, how to manage transformation / reorganization process, and
how to manage M&A transactions. Several corrupted transactions revealed indicate,
that this market becomes more solid and stable.
In this article the emphasis was placed on the identification of success/failure of M&A
transactions from the perspective of the acquiring (or dominant) company. It is
worthwhile to also examine the perspective of the acquired firm. All in all, studies on
the subject are warranted, yet because of their size (amount of money involved),
political implications (or involvement), and sole legal complexity, it may remain
difficult to conduct “real-scientific” type of studies, that follow “real-scientific
methodology” – too much money behind the scene may be detrimental to precision
of conclusions.
References
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