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What, When, Why of European Sale and Leasebacks With Mathew Wainwright

Please introduce yourself and share a bit about your journey to becoming Director of European Transactions at Ascension Advisory? What sparked your interest in joining the company? 

I’m of mixed Spanish and English descent, with a diverse background in M&A and investing across the United States, Europe, and Australia. My journey to becoming the Director of European Transactions at Ascension Advisory began when I was working in Private Equity. During that time, I had the opportunity to work with the Ascension team and I experienced the team’s effective transactional capabilities firsthand as a client, particularly in financing business acquisitions and recapitalizing owned real estate assets.

Impressed by their ability to execute deals promptly and their ambition to expand throughout Europe, I saw a natural alignment between my expertise in leading European expansions and Ascension’s strategic goals. The prospect of contributing to Ascension’s growth in a meaningful way, combined with their track record of closing $700M in transactions in just 18 months, had me interested in joining the team. Additionally, the potential to further the European expansion and help European business owners and private equity firms benefit from sale and leaseback arrangements solidified my decision, recognizing these as mutually advantageous solutions.

What is the sale and leaseback strategy and how does it work?

A sale and leaseback is a financial transaction where a company sells its owned real estate to an investor and immediately leases it back under a long-term agreement. This strategy allows the company to unlock the full value of the property, transforming an illiquid asset into working capital. The funds generated can be used to reinvest in the business, reduce debt, finance acquisitions, or distribute dividends to investors, all while the company retains operational control of the real estate.

At Ascension, we specialize in facilitating sale and leaseback transactions for private equity firms and business owners. This approach provides them with a non-dilutive form of capital that can be utilized either while acquiring a company or during the ownership phase of an operating company that owns real estate.

Why are sale and leaseback transactions popular throughout Europe?

Sale and leaseback transactions are gaining popularity across Europe due to several factors. Historically, European businesses have preferred owning their real estate. However, there is an untapped opportunity within the 4 trillion euro corporate real estate market that is ideal for sale and leaseback arrangements. As businesses in Europe and the UK increasingly seek new sources of liquidity for growth, sale and leaseback arrangements offer an attractive solution. The strategy allows companies to access affordable financing and non-dilutive liquidity, making it an increasingly favored option among both businesses and private equity investors.

What are the benefits of sale and leasebacks for business owners and private equity firms?

The primary advantage of a sale and leaseback for private equity firms and business owners is the ability to convert real estate assets into non-dilutive capital for various uses:

  • Access to Acquisition Financing: sale and leasebacks provide a source of funding for acquisitions, enabling companies to expand their operations.

  • Flexible, Covenant-Free Financing: This form of financing does not require covenants or personal guarantees, offering more flexibility than traditional loans.

  • Full Asset Valuation: Unlike mortgages that may only finance a portion of a property’s value, sale and leasebacks can realize 100% of the asset's market value.

  • Cost-Effective Capital: Often, the financing obtained through sale and leasebacks is cheaper compared to other alternatives, reducing the overall cost of capital.

  • Creation of Equity Value: Businesses can potentially create additional equity value by arbitraging differences between EBITDA multiples and cap rate multiples.

These advantages make sale and leaseback transactions a strategic financing option to support business growth and provide operational flexibility for companies.

Are there any sectors or industries in Europe where the sale and leaseback is particularly effective?
 
Sale and leaseback transactions are particularly effective in sectors where real estate is integral, or “mission-critical” to the business operations. For instance, logistics companies benefit greatly as their warehouses are essential to their daily operations. Same thing for manufacturing companies and their facilities. In contrast, industries where real estate is less critical, such as startups that might not rely heavily on physical office space, may find less utility in this strategy.

We are equipped to handle sale and leaseback deals across all asset classes and sizes, ensuring flexibility and adaptability to various industry needs.

How do current economic conditions affect sale and leaseback opportunities?

Current economic conditions significantly influence sale and leaseback opportunities. For example, in times of higher interest rates, businesses and private equity firms often turn to sale and leaseback arrangements as a more affordable financing alternative. This strategy allows them to access capital at potentially lower costs compared to traditional loans, which become more expensive as interest rates rise.

However, these same economic conditions can also slow down M&A activity due to increased borrowing costs. Despite this, sale and leasebacks continue to serve as valuable tools for financing acquisitions, demonstrating their utility across various economic scenarios. Essentially, while economic shifts can have both positive and negative impacts, sale and leaseback transactions remain a versatile and strategic financing option.

What does the process of arranging a sale and leaseback transaction typically involve, and how long does the process take?

The process on average takes between 30-120 days, depending on country, size, type of process, and other factors. 

A sale and leaseback assessment first involves an analysis of the operating business and an analysis of the real estate. Once this is complete, we prepare a sale and leaseback proposal for the client, detailing pricing and lease terms that the company can expect.

In terms of the transaction, we run the entire process from start to finish. This begins with the investor outreach process and signing up an investor, then contract negotiations, property due diligence, lease negotiations, and all the way to the closing process. 

Who are the typical buyers of these sale and leaseback opportunities? 

The buyers of sale and leaseback opportunities vary based on the transaction size, strength of the credit, quality of the real estate, and other factors. Typically for deals less than €15 million, we generally attract less institutional buyers, often involving private investors or smaller financial entities. 

For transactions exceeding €15 million, we predominantly engage with institutional buyers, such as real estate investment funds, family offices, public vehicles, and financial institutions, all who are professional investors and therefore more equipped to handle significant transactions.

What future trends do you anticipate for sale and leaseback strategies across Europe?

I anticipate that sale and leaseback strategies will become even more popular across Europe as business owners and private equity firms look to optimize their capital sources. This approach allows them to access non-dilutive liquidity by leveraging real estate assets they own or control.

Why?

Cash is king in a business. It lets you make smarter and better long-term decisions.

Having cash on hand allows companies to make strategic decisions more effectively. By freeing up equity tied up in real estate, firms can use this capital for more impactful investments, fostering quicker organic and inorganic growth. This method proves particularly advantageous in dynamic market conditions, enabling businesses to adapt and expand more swiftly.

What advice do you have for private equity firms and business owners considering sale and leasebacks as part of their value creation or acquisition financing strategies?

The benefits are clear. However, it's in the practice and realization of the sale and leaseback, that the strategy generates the magic.

If you’re interested in exploring this further, I’d recommend you get in touch with our team so we can provide you with a proposal. Then at a minimum, you’ll have this extra tool in your toolbelt.

I'm sure they will be impressed with our capacities and abilities to help them execute on their operational and M&A goals. 
 

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