An owner retaining a building after the sale is a very common practice we see in M&A transactions. This can be a source of cash flow after selling the business.
In this video, Ryan Campbell, CPA, CGMA, CVA, Partner in Charge for our Pensacola office, talks about the valuation process, including cash flow adjustments and more.
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If you prefer to read this content, the video transcript is below.
One major aspect in an M&A transaction is real estate. A lot of times, companies own either inside or outside of the company real estate. And it’s usually a very significant wealth factor to the exiting owner.
Now, the question is: Can I sell my business and keep my building? Absolutely.
We see this a lot of times with owners, and it can be a really great source of cash flow after the transaction – somewhat of a retirement payment that they can receive after the sale.
Now, in this structure, there are a couple of factors to consider as we’re doing this.
One is if the building is held within the company or held outside of the company, either personally or in a related LLC. If it’s within the company, typically during our valuation process we’re going to consider the rental payments of the building and that is going to reduce the EBITDA (or the cash flow of the company) and therefore reduce the value as we’re coming up with it.
Now, if the owner’s intention is to keep the building, we’re going to want to adjust those EBITDA values to remove the cash flow effect of those rental payments.
So, as I mentioned, an owner retaining a building after the sale is a very common practice we see in M&A transactions.
If you have any questions on that, or if there are any other valuation questions you may have, please feel free to reach out to our team and we’d be happy to discuss.