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Are Financial Services Companies Overlooking the “X Factor” in M&A?

JLL shares three strategies for using corporate real estate to increase returns during a banking merger or acquisition

CHICAGO, May 13, 2014 – Banking industry consolidation is expected to increase in 2014, as large banks pursue specialization and smaller banks seek to counter the increasing costs of regulatory compliance. To maximize the benefits of mergers and acquisitions (M&A), companies should not overlook the “X factor” that can make or break the success of the deal: the value hidden in corporate real estate portfolios. According to JLL’s Banking Industry Group experts, banks and financial services institutions can ensure a positive M&A by using three primary strategies: engage the corporate real estate team early; identify immediate integration cost savings; and be diligent about change management for long-term success.

“While real estate is only one of the key factors that determine the success of banking M&A transactions, it is the ‘X factor’ that can add real value,” says Stuart Hicks, Lead of JLL’s Banking Industry Group. “When used strategically, corporate real estate can help a buyer edge out the competition for the greatest return on the deal.”

Almost 50 percent of financial services executives will be acquirers in 2014, with 71 percent planning deals valued at less than $250 million, according to KPMG’s January 2014 M&A Spotlight. Top reasons financial services firms are engaging in M&A include: geographic reach expansion, entering a new line of business and customer base expansion.

To better achieve M&A goals, Hicks recommends three primary corporate real estate strategies for financial services companies:  

1) Engage early:  Bring in the corporate real estate team during due diligence.
A critical component of the M&A process, the due diligence phase is also one that entails the highest risk, particularly for banks with overlapping retail footprints. Engaging the corporate real estate team during due diligence will help a company better understand the value and the risk that can be hidden under layers of leases and building valuations. Environmental risks from contaminated properties can also be assessed and evaluated during this phase.

For example, one major financial institution laid its real estate groundwork far before it acquired two smaller banks in an ambitious expansion plan. Long before the acquisitions, the acquiring bank had forged an outsourcing relationship with JLL to consolidate services and add capabilities to support the bank’s future growth. The acquiring bank had pledged to cut millions of dollars in costs from the combined banks, with savings expected to come mainly from consolidation of headquarters and back-office operations—priorities that made the facilities team central to the acquisition’s success. The acquirer ultimately exceeded its cost-savings goals for its real estate footprint, while creating a career path for facilities personnel who transitioned to JLL.

2) Identify immediate cost savings: Know in advance where redundant facilities can be quickly consolidated when the deal is closed.
From pre-offer to post-close, the acquiring bank’s corporate real estate team must be equipped with robust business intelligence, processes, tools and expertise to assess the corporate real estate portfolio and retail locations. With the right data and analytics, the team will be able to provide forward-looking scenarios in a matter of days. 

“Banks need to ask the right questions during the M&A due diligence process to fully understand the corporate and retail real estate portfolios,” says Hicks. “Where do portfolios overlap? What is the value of surplus facilities? Are there hidden risks in the properties that will hinder integration? What will the fully integrated portfolio and the reshaped retail footprint look like?”

3) Be diligent about change management: Execute for post-transaction long-term success.
After a deal closes, the faster an organization can rationalize the corporate real estate portfolio, the faster the cost savings will translate into returns. 

“Often, organizations attempt post-transaction integration with a team and technology that don’t offer a fast-paced program, creating a lag on results,” warns Hicks. “An M&A has many moving parts, so a company needs to ramp up and put the right players in the right positions to ensure integration success as rapidly as possible.”

A financial services firm undergoing an M&A should create a facilities-specific program management office and a governance framework to streamline integration activities following the closing, with personnel focused on both corporate and back office facilities, and on the retail footprint. 

Of course, the program management office will only be as successful as the execution team, which, ideally, will include change management specialists, workplace strategists, CPAs, legal specialists, architects, project managers and commercial real estate brokers experienced with M&A. The team must be equipped to manage a potentially large and complex portfolio of diverse property types, including not just offices and bank branches, but also data centers, call centers, ATM leases and other properties. 

Having a well-rounded team in place at the start of its acquisition phase enables it to create a playbook for corporate real estate integration–even before a transaction closes. With swift execution, the team will enable an institution to quickly assimilate disparate acquired facilities, consolidate office operations and implement a high-profile redesign of the expanded branch network.

An outsourced real estate partner can also help with branch rebranding—a major challenge that typically accompanies acquisitions of retail banking operations. In the preceding example, the acquiring bank needed to rebrand hundreds of bank branches. By engaging JLL’s project managers early in the process, the bank ensured that the branch redesign plans would reduce rebranding time and expenses and improve revenues in the field. 

The bank also built facilities-specific communications into its overall change management program—another M&A critical success factor. It sent its corporate real estate team on the road to meet with business unit leaders and facilities staff to explain the transition process following its acquisitions. These “roadshows” created good will among employees of the acquired institutions and helped overcome resistance to the integration process.

A leader in the real estate outsourcing field, JLL’s Corporate Solutions business helps corporations improve productivity in the cost, efficiency and performance of their national, regional or global real estate portfolios by creating outsourcing partnerships to manage and execute a range of corporate real estate services. This service delivery capability helps corporations improve business performance, particularly as companies turn to the outsourcing of their real estate activity as a way to manage expenses and enhance profitability.

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About JLL
JLL (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $48.0 billion of real estate assets under management. For further information, visit