Due Diligence Pays Off

Walking Away is Sometimes the Best Course of Action

Background

The owner of a small multi-site company was looking to expand into a highway commercial market on a major north-south artery connecting Southern and Northern Ontario.

The Challenge

Can the market support the construction of a new gas station/convenience store?  Alternatively, can an existing station be purchased and renovated?

Observations

Through the analysis of traffic counts, estimates of existing site volumes and future growth projections (which were negative) it was determined that the acquisition of land and the construction of a new station would not be profitable.

Solutions

It was recommended that the owner try to acquire one of two existing facilities at prices that would afford an acceptable return on investment after renovations.  A preliminary offer to purchase was negotiated with one of the two target properties.  In the course of performing detailed due diligence on the property, a significant issue was discovered with the property boundaries in relation to the location of certain structures on the property.  The issue was significant enough that a renegotiated purchase price was necessary.  An acceptable revised number could not be reached with the existing owner.

The owner of the second target property was approached. A preliminary review of the condition of the property and the potential redevelopment costs resulted in a purchase price range that would satisfy the client’s desired return on investment.  An offer to purchase could not be reached with the existing owner within the desired price range.

Results

Despite the client’s desire to expand into this market, a cost effective way to do so could not be found.  The client abandoned their plans to expand into this market.  Interestingly, within a year of this decision, the second target station closed for financial reasons.

Sometimes the best course of action is to walk away.

 

 

 


 

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