3 Reasons to Consider a Sale Lease-back

Updated: Mar 10, 2018

Are you considering a sale lease-back? Here are some benefits.


First, our clients have sold and leased back their company-owned real estate to raise cash to (among other reasons):

  • Provide working capital

  • Pay off more expensive junior debt

  • Buy or build a new building

  • Buy equipment

  • Hire more employees

  • Buy another company

  • Retire a parent to Florida

  • Buy out a partner

  • Pay unfunded pension liabilities

Second, they have been able to attract and infuse relatively inexpensive capital into their company without having to give-up any portion of their ownership interests to the sale-leaseback investor.


Third, a critical reason to do a sale-leaseback is to maximize the value of the entire company as part of a long term exit strategy.


Why?

Because two is greater than one:  that is, the total net proceeds from 2 transactions – sale of the real estate, then the sale of company, separately – exceeds the net proceeds the owners of a company would receive from a sale of their company when the real estate is included in sale of the company.


Commercial real estate typically sells at more than twice the multiple of cash flow of companies. Middle market companies typically trade at 4 to 6 times EBITDA whereas their real estate sells for its net operating income (NOI) capitalized at 7% to 10% – or a multiple of 14 to 10 times cash flow.


More investors can afford the company without the real estate: by reducing the sale price of the company, there will be a larger population of buyers who can afford the smaller offering price, which will generally increase the competition and, thereby, increase the price ultimately paid to acquire the company.


Aggressive buyers, such as private equity firms, prefer to buy the higher returning operating company without the additional cost and IRR drag of the lower returning real estate.

A critical reason to do a sale-leaseback is to maximize the value of the entire company as part of a long term exit strategy.
Great Cove Advisors
Sale Leaseback Specialists

Boston, Massachusetts

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