The Crisis in Business Context

While the health crisis is the threat the Coronavirus holds over each of us, the business consequences are financial and often felt before anyone’s health has been compromised by the virus. Our economy relies upon cash flowing from one person and organization to another, and another, and another and so on. This “cash flow” circulation throughout our entire economy, when  measured is the “velocity” of money. The faster it flows the more robust our economy becomes. Most of our business economic arrangements depend on the basic trust of each party to a transaction, no matter how small the sale or how large the contract. This trust is shaken right now because of the uncertainty of our businesses and our livelihoods. The Federal Government’s job with stimulus funding is an attempt to restore the trust that helps to keep our economy going. Let’s all try and do our part and keep the cash flow moving.   See: What Is Money Velocity and Why Does It Matter?

The worksheets on the following two pages provide a way of looking at your company’s situation through the lens of your financial statements – both balance sheet (your financial condition at a point in time) and your income statement (your financial performance over a period of time). Looking closely at each line item of your own unique financial statements provides an orderly way of considering what and where you may be able to positively impact your own financial circumstances. Can you reduce liability, collect on assets owed to you, reduce an expense, and eliminate some overhead? All of these you’ve probably already looked at somewhat, but as circumstances continue to change it might be helpful to look even more carefully by visiting this worksheet for your business and your home situation too. Read more »

The report below gives a good overview of the first quarter M&A activity in the Commercial Real Estate Industry Sector. According to data released by CBRE, a leading commercial real estate firm, global investment volume totaled US$260 billion in Q3 2019, up by 7% over the previous quarter but down by 2% from Q3 2018. The U.S. recorded a relatively soft third quarter due to political uncertainty, low yields and some recession fears.

Investment volume in the Americas declined by 17% year-over-year an, mainly driven by lower volumes in Canada and the U.S.

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The report below gives a good overview of the fourth quarter M&A activity in the Commercial Real Estate Industry Sector. According to data released by CBRE, a leading commercial real estate firm, global investment volume totaled US$428 billion in H1 2019, down by 10.6% from H1 2018. The Americas was the only global region with year-over-year investment volume growth (+0.7% to US$128 billion) in Q2. Americas’ transaction volume totaled US$235 billion in H1, down 5% from H1 2018.

There was an increase in office transactions in Q2, though the industrial and hotel sectors leveled off. The most active U.S. sector was multifamily.

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The report below gives a good overview of the third quarter M&A activity in the Commercial Real Estate Industry Sector. According to data released by CBRE, a leading commercial real estate firm, commercial real estate investment volume decreased by 12.7% year-over-year in Q1 to $99.6 billion. However, trailing four-quarter volume increased by 11.6% year-over-year, the second-highest rate since 2015.

Capitalization rates for the quarter declined slightly by 15 bps.

Commercial real estate acquisition volume lagged in Q1 driven by a rise in interest rates and pricing expectations.

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The report below gives a good overview of the second quarter M&A activity in the Commercial Real Estate Industry Sector.  According to data released by CBRE, a leading commercial real estate firm, commercial real estate investment volume rose 20.6% year-over-year in Q4 to $152.4 billion. Total investment for the year was $534.8 billion, a sizable increase of 14.8% from 2017.

The largest investment in Q4 was in the major metro markets of New York, Los Angeles and the San Francisco Bay Area. Those three regions accounted for 27.7% of all investment dollars. Additionally, the top-15 markets accounted for 64.4% of total Q4 investment volume.
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The report below gives a good overview of the first quarter M&A activity in the Commercial Real Estate Industry Sector. According to data released by Ten-X Commercial, a leading transaction platform for commercial real estate, commercial real estate transaction volume totaled $143.9 billion in the third quarter, up 24.6% from the second quarter and 22% from the prior year.

Retail real estate sector deal volume increased to $20.7 billion following a two-year decline. The bump marks its highest total since late 2014, driving increases in overall transaction volume. Office and apartment transaction volume accounted for a combined 58.1% of third quarter deal volume after climbing 15.3% and 14.2% from a year ago. Retail transaction volume saw the greatest year-over-year increase by 90% to $28.4 billion, the highest level on record.

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The report below gives a good overview of the third quarter M&A activity in the Commercial Real Estate Industry Sector. M&A activity for North American based target companies in the Commercial Real Estate sector for Q2 2018 included 57 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in June when industry leader CBRE Group, Inc., diversified its services by acquiring FacilitySource LLC from Warburg Pincus LLC for US$290 million in cash. The acquisition strengthens CBRE’s ability to deliver integrated solutions for occupier clients. Founded in 2005, FacilitySource is located in Columbus, Ohio and provides outsourced integrated facility support services.

The 30-year fixed rate mortgage in the United States steadily rose in 2018 but began to decline slightly toward the end of Q2, which could spur activity in the commercial sector.
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The report below gives a good overview of the second quarter M&A activity in the Commercial Real Estate Industry Sector. According to data released by Ten-X Commercial, a leading transaction platform for commercial real estate, commercial real estate transaction volume edged down to $117.4 billion in Q4 2017 representing a 0.5 percent decline from the prior quarter.
Following two quarters of growth, the minor drop can be linked to a $6.7 billion decline in deal volume in the industrial sector. In comparison to the same period a year earlier, investment activity plunged by 13.2 percent.

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As investment bankers to a wide variety of closely held companies we sometimes witness business owners investing heavily in new production output “capacities” (new equipment, new hires, plant expansions, or even acquisitions) well before they’ve properly established the full “capability” to put that new or expanded capacity to work on an optimized basis.

Generally the goal of creating new production or service capacity is to take advantage of a market opportunity, stay competitive, and create increased enterprise value in the business.

In this context “capability” is the condition of being sure your key team members have the know-how to produce the expanded product or service output. It also means having codified the processes employed to produce your product or service, so that new members to the team can also generate the product or service without any diminution in the quality or effectiveness to the customer. And it means you have the disciplines in place to continue producing the product or service with the same or better level of customer satisfaction, product integrity, and product reliability. It may also mean that you are continuously keeping an eye out for product relevance in your industry and marketplace, as well as being aware of what your competitors are doing and alternatives to your product or services.

Without being sure the capabilities are in place to get the greatest benefit from your new investment, you risk losing the financial advantage you expected. That new capacity (higher production rates, faster throughput, better engineering or design, or systems to reduce materials procurement costs, labor inputs, or transportation and logistics expenses) should be able to deliver measurable improvement in key financial metrics soon after the new investment in the capacity has been made.

While both capability and capacity can sometimes be developed concurrently it is often not advisable to make large capacity investments before you are sure you can provide the associated capability to optimize use of that new equipment, factory addition, acquisition, or expensive new talent.

Taking the time to plan on incorporating these two key elements of growth will help you more confidently achieve the goals you envision by adding new capacity.

For more information on this topic or assistance in expanding your company’s capabilities and capacities, and confidence, please contact your nearest CFA investment banker.

The report below gives a good overview of the first quarter M&A activity in the Commercial Real Estate Industry Sector.

Deal volume and prices increased yearly from Q3’11 through to Q3’16, but that was not the case in 2017. In the commercial real estate sector in 2017, increasing prices showed owners looking to hold onto assets with a focus more on cashflow (cap. rates) than a large pay out at disposition.

The trend of foreign buyers looking to invest in U.S. commercial real estate continued in 2017. According to data from the National Association of Realtors, the top countries of origin for foreign buyers included China, Mexico, the United Kingdom and Venezuela.

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