Analysis of risks involved in an acquiring оf a CRE asset (Buy-side M&A)

Competence area: Investment, M&A services

Industry/sector: oil and gas / non-core assets

Year of completion: 2014

Client: a subsidiary of Gazprom, Russia

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Project background:

The Client contracted Investorium to conduct a partial Due Diligence check of a CRE asset (a set of recreational facilities in a historic suburb of St. Petersburg) in order to see what kind of risks were involved in the acquisition of the said asset and its use in the future. In particular, the Investorium team assessed the risks related to the legal status and encumbrances of the land plots and buildings involved in the transaction, the risks arising from the encumbrances of the legal entities that own the assets involved, as well as the risks related to doing the business on this CRE asset.

Scope of work:

In conformity with the Client’s instructions, the project team conducted a comprehensive risk analysis and prepared an investment opinion on the basis of the information derived from the analysis. The investment opinion looked at various options for structuring the transaction while mitigating the above risks. One reviewed option was to purchase the legal entities who owned the assets in question, the other option being a direct acquisition of the assets.

The option that made most economic sense and ensured hedging legal risks of the transaction was a direct acquisition of the said recreational assets, the only constraint being that, after the transaction, all the land lease agreements would have to be renegotiated. It is a standard practice that transferring the rights and obligations of a party to a land lease agreement to a third party, as well as changing the intended use of a relevant land plot, are subject to approval by the lessor, Municipal committee for the city property management. The project team also looked into legal and environmental aspects of using the stretch of the Gulf of Finland coastline, close to which the recreation facilities are located.

Deliverables:

The investment opinion containing an analysis of the legal and other risks and the rationale for the preferred acquisition option was submitted to the Client’s legal department to be taken into account in the decision-making process. The Client successfully closed the transaction and acquired the recreational asset in question - Strelna sanatorium, located in the vicinity of the National Congress Palace (Konstantinovsky Palace) run by the Executive office of the President of Russian Federation.

Media coverage:

forbes.ru

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