When you are negotiating to purchase a business part and parcel to accelerate your growth, expand your business range, or increase your market share, there are two critical facets of a sound economic deal: the valuation of the business and the cost related to the real estate.
When the real estate is for sale with the business, establishing the intrinsic value of the real estate is more or less a function of two standard appraisal practices: analyzing value by looking at comparative sales, and by looking through the lens of the highest and best use of the property.
It becomes a bit trickier when the real estate is retained by the seller and leased to the buyer or is leased in the first place. The rental costs of the real estate have a huge impact on the net income projections of the business and cannot be negotiated separately from the acquisition of the business enterprise. Doing so puts untenable pressure on the dealings for the second piece and negotiations could breakdown altogether. The two major financial pieces must be on the table at the same time.
I am typically involved in the buy side and recommend to my clients that they let the business seller express their preference of whether they want to get the best possible pricing on the business or on the real estate. Then everyone involved knows what part we will be negotiating and understands how the two are linked together.
Exercise both legs simultaneously or else you will be limping – or worse, hopping – toward your future success.