Inside the Industry’s Biggest M&As

Veteran leaders revealed what makes real estate mergers work.

June 8, 2011
By Paul Rosta, Senior Editor

Veteran executives offered insights into the fine art of the corporate merger Wednesday afternoon at the National Association of Real Estate Investment Trust’s annual REITWeek event in New York City.

Speaking to a packed ballroom at the Waldorf-Astoria Hotel, panelists discussed the challenges and strategies involved in public-to-public and private-to-public moves.  Patience was a virtue when ProLogis and AMB Property Corp. joined forces, noted Walt Rakowich, co-CEO of the giant industrial REIT, which has completed six mergers since 1998. Although the ProLogis-AMB deal closed only last week, Rakowich and Hamid Moghadam, chairman and co-CEO, discussed a merger several times over the years before the two stock value and other factors made the time right.

“I think the best time to merge, if you can, is when the markets are coming out of the recession,” said Rakowich, who will retire at the end of 2012 and hand over sole CEO duty to Moghadam.  During a recovery, clients are often in expansion mode, providing the opportunity for service providers to ramp up alongside them, Rakowich explained.

The long gestation period that often precedes mergers makes it imperative to continuously educate the board of directors about potentially attractive combinations, said Ventas Inc. chairman & CEO Debra Cafaro, who has recently overseen massive mergers with Lillibridge Healthcare Services Inc., Altria Senior Living Group and Nationwide Health Properties Inc. “Hearing about them over the years has an accretive benefit” for board members, she said, adding,  “I really believe that all that pre-work has benefited us.”

Along those lines, Rakowich maintained that obtaining buy-in from the handful of top people in the company is crucial to a successful merger. That also calls for a tricky balancing act, however:  “Getting employees on board with these things and not letting it leak out is really hard,” Rakowich observed.

Panelists also saw encouraging signs in the expanding role of private equity players in corporate acquisitions. A case in point: Blackstone Group L.P.’s recent $9.4 billion purchase of Centro Properties’ U.S. retail holdings. “You’re seeing more private equity going in that direction today, which is driven entirely by leverage,” explained Matthew Lustig, vice chairman of investment banking & head of real estate at Lazard Feres & Co. L.L.C.