Real estate spin-off: the strategic move that maximizes your company's value for sale

1. Distinct asset valuation:
   Investors interested in acquiring a company often seek the operational business, not necessarily the real estate assets.
   → The separation between activities allows valuing the operational one based on EBITDA multiples and the real estate one according to real estate market logic.
   → This double valuation enables achieving a higher total value compared to selling the company as a whole.
2. Broadening the pool of potential buyers:
   Real estate spin-off allows targeting different categories of investors.
   → Industrial or financial investors are interested in acquiring operational activities while real estate funds or private investors are interested in real estate assets.
   → This diversification significantly increases the likelihood of success and enables obtaining more advantageous conditions.
3. Improvement of economic-financial indicators:
   Separating core business from real estate activities improves the operational company's performance indicators.
   → We see an increase in ROI (Return on Investment), an increase in ROE (Return on Equity), and an improvement in working capital and financial structure.
   → These improvements make the company more attractive to potential investors and can justify valuations using higher EBITDA multiples.
4. Reduction of negotiation complexity:
   Selling a company that includes significant real estate assets often involves additional complexities.
   → These include: more complex and costly due diligence, specialized technical assessments, greater legal and environmental risks related to properties, and longer negotiation times.
   → The spin-off simplifies the operational company's sale process, making the transaction more streamlined and efficient.
5. Flexibility in strategic options:
   Real estate spin-off offers more strategic options compared to selling the entire company as a block.
   → These include: immediate sale of both entities to different parties, sale of operational business while retaining real estate ownership, etc.
   → This flexibility represents a significant advantage for the entrepreneur who can optimize choices based on market conditions.

The spin-off operation requires careful planning and typically involves the following phases:

• Preliminary analysis:
  assessment of real estate assets, study of tax implications, and definition of strategic objectives
• Demerger project:
  drafting and filing of the demerger project in compliance with Article 2506-bis of the Civil Code
• Corporate approval:
  resolution by administrative bodies and shareholders' meeting of the companies participating in the demerger
• Opposition phase:
  period during which creditors can oppose the demerger operation
• Demerger deed:
  execution of the notarial demerger deed and management of publicity requirements prescribed by law

In addition to the strategic benefits described above, real estate spin-off offers the following important tax advantages:

Tax neutrality:
the demerger is a tax-neutral operation, generating neither taxable capital gains nor the obligation to pay tax on higher values
Tax optimization:
possibility to apply different tax regimes to the two resulting entities
Indirect tax planning:
optimal management of VAT and registration, mortgage, and cadastral taxes
Realignment possibility:
opportunity to revalue properties after the demerger, with benefits in terms of tax depreciation

Despite numerous advantages, real estate spin-off presents some critical issues that need careful evaluation:

• Procedural complexity:
  the operation requires specialized expertise and is not immediate (generally 3-4 months)
• Operation costs:
  notary and professional fees and expenses to be related to expected benefits
• Need for reorganization:
  necessity to redefine relationships between operational and real estate companies (lease agreements, services, etc.)
• Potential tax authority challenges:
  risk of challenges if the operation is considered tax avoidance

Studio Mannelli & Partners offers specialized Advisory services for M&A operations, supporting entrepreneurs and investors in successfully facing current market challenges.

Contact us for personalized consultation on your project for acquisition or divestment of companies or corporate stakes.