Case Study – Prudential California Realty

Case Study

Sale of Corporate Real Estate Businesses

Client: Prudential California Realty

Background: HechtSolberg represented the owners of Pickford Realty, Ltd. in the sale of their company and related businesses to HomeServices of America, a Warren Buffett company. Pickford Realty Ltd. operates under the name Prudential California Realty as an independently owned franchisee of The Prudential Real Estate Affiliates. At the time of the sale, Pickford was among the largest independently owned residential real estate brokerage companies in the United States, with more than 2,500 agents operating from more than 50 offices in Southern California.

Challenge: Pickford’s brokerage and related businesses were operated through separate partnerships, corporations and limited liability companies. In addition to the key owners, each operation had additional investors and different management arrangements all of which needed to be factored in the sale. Each business also had outside relationships with landlords, vendors, suppliers and consultants all of which needed to be addressed. Plus, a key requirement was that the sale of the businesses close at the same time.

To add to the challenge, the owners’ interests in the operating businesses were being sold, making the sale more complicated than a typical sale of just the assets. As a result, the purchase and sale agreement called for extensive representations and warranties about the status of the businesses, including detailed disclosure statements. The change in ownership and control also affected both the existing franchise arrangement with Prudential and the loans and line of credit Prudential had extended to Pickford.

Solution: HechtSolberg ensured that negotiations and contacts with outside parties were handled discreetly and in confidence. The selling owners agreed to remain involved in the business after the closing, including agreeing that payment of portions of the purchase price would be deferred under “earn out” arrangements. HechtSolberg negotiated the terms and conditions of the Purchase and Sale Agreement, the management agreements, the “earn out” arrangements and the related covenants by the sellers not to compete with the buyer’s businesses. HechtSolberg’s previous experience with such arrangements ensured that rights and responsibilities were defined clearly, including objective benchmarks for “earn out” payments; and that assurances regarding time and territory restrictions on the covenants not to compete complied with applicable laws. Most notably, HechtSolberg ensured that the closing took place as a coordinated and successful one-day event.