Disposition
Arcterra’s extensive global network is also the foundation on which our disposition advisory services are based. Key members of the team maintain ongoing relationships with the senior officers of sovereign wealth funds, pension funds, insurance companies, endowments, trusts, family offices, investment managers, investment consultants, and major industry players. This helps us stay abreast of current allocations of capital and specific investment criteria across a wide range of capital sources. Each investor has very specific investment criteria based on a variety of factors particular to that investor. Discovering and understanding these nuanced investment criteria is fundamental to matching the appropriate capital with a specific asset. Often, key decision makers within these investor groups are responsible for all real asset allocations. Thus, building long-term relationships with these key individuals is critical to the successful disposition process.
Arcterra has been fortunate to build and maintain an excellent network of sophisticated and well-capitalized investors.
Once a client engages Arcterra’s services, the basic disposition framework is as follows:
Strategy
Develop disposition strategy based on asset profile, seller objectives and market conditions.
Arcterra begins by providing a high-level assessment of the asset, including a rough valuation, to provide a context for establishing key objectives. The seller communicates key factors that will affect the sale, including: timing, liquidity requirements, structural and tax considerations, major liabilities or restrictions, and price expectations. We then discuss with the seller the various options for the sales process (e.g. auction vs. privately negotiated) as well as the target audience (pension fund vs. strategic buyer). Arcterra provides inputs based on its knowledge of each buyer’s investment criteria (as developed from our extensive and on-going relationships with buyers). The outcome is an agreed to disposition strategy that aligns the seller’s objectives with realistic target buyers that are deemed capable of both funding and closing a transaction.
Analysis
Data collection, discounted cash flow modeling and sensitivity analysis.
Arcterra uses its proprietary, asset specific discounted cash flow models as the backbone of its analysis. While these models are extremely powerful tools, the results are only as good as the assumptions used to run them. Arcterra collects data meticulously, and its team has been doing so for years, providing extensive historic context and geographic diversity to the specific assumptions in question for a given project. Initial site visits are always conducted at this stage (if not before) to better understand the current conditions of the markets, assets, and management team under consideration. Arcterra verifies key assumptions and ensures that the asset owner transfers any available data in its “purest” and most up to date form. It is important to note that this process is independent of past appraisals and data is thoroughly “scrubbed” to ensure realistic value expectations are established. This process can create tension between Arcterra and its clients, but ultimately this process leads to credible offerings and substantially increases the overall chances of a successful closing.
Identification
Identification of target investors and outreach to decision makers.
Arcterra’s relationships with investors are a key component to its success in the disposition process. Most projects are sold on a privately negotiated basis and each investor is contacted personally by a senior member of the team to discuss the investment opportunity. Arcterra does not subscribe to the philosophy that more is better when approaching the disposition process. Instead, our personalized approach leads to a more efficient process with a higher success rate. Additionally, this approach leads to a more discreet offering and does not expose our clients to the challenges to daily operations that come with a more public process. Potential investors are pre-qualified, and the selection process is rigorous, with the goal of limiting disruption to our clients and economizing time and resources. Both relationships and experience play an instrumental role in this vetting process, as it can be quite tricky to identify motivated buyers that have sufficient capital that will be available within the timeline of the project.
Negotiation
Negotiation of key terms, due diligence and transition plan.
Once a list of qualified investors is established, Arcterra can begin negotiating key terms on behalf of its client. Generally, offers are submitted by buyers, and then followed by initial face-to-face negotiations. Once a mutually acceptable term sheet or Memorandum of Understanding has been established, extensive due diligence is conducted by the buyer. Arcterra works closely with its clients and with third party service providers to ensure all necessary documentation is well-organized and readily available (usually via virtual data room) so investors can conduct a thorough technical, legal and financial assessment of the opportunity. Throughout this process, Arcterra orchestrates the smooth operation of the many moving parts and facilitates communication between all parties. Often, additional negotiation is necessary based on the results of the due diligence process, which then leads to the finalization of the terms of the closing documents. It is also critical to address transition planning during this phase to ensure a seamless transition from the current management to the future management.
Closing
Signing of documents, transfer of assets and transition of management.
Arcterra significantly increases the likelihood of reaching a successful closing through its dedication, creativity, and expertise in the previous phases. Most transactions result in a substantial transition period in which the buyer and seller work together to ensure the successful transfer of the assets and transition of the management. Arcterra can continue to add value after a transaction closes through its intimate knowledge of the key terms and conditions and is available to provide post-closing services.
