ACQUIRING A DISTRESSED BUSINESS – KEYS TO SUCCESS
The rate of business failure in Ireland remains troublingly high, but that unfortunate situation also creates opportunities. For businesspeople with the means and expertise to turn a company around, buying a distressed business offers the chance to pick up a bargain, renegotiate contracts and liabilities, and transform a failing company into a successful one. Of course, saving a distressed business isn’t a simple process. However, following a few simple rules will give you the best opportunity for success.
Know What You’re Purchasing
If you’re seriously considering buying a failing company without knowing how it works, well, there’s a bridge in San Francisco I’d like to sell to you. To be successful, you need to have a solid picture of the assets that you’re interested in, and how they can fit in and create synergies with any other assets that you have. This doesn’t have to be about high-level, multi-million euro deals, by the way: if a business is failing because of high rents, and you have access to a cheap premises that would meet its needs, that’s an instant synergy.
Also, consider ‘cherry picking’ assets from a company. A business may be failing at its core, but it may have a side business or division that’s potentially profitable. Do your due diligence before making any commitment on a takeover, and only purchase the parts of a business that will add value.
Have a Turnaround Plan
To think that a change at the top is all that’s required to turn around a failing business is, quite frankly, a bit arrogant. Companies get into distressed situations for various reasons: if you’re thinking of rescuing a firm (or part of it), you need to understand those reasons, and figure out how you can fix the problem.
If, for example, a company is doing well in terms of winning new business and serving it, but failing to collect the cash, then there’s an obvious area where some extra effort or experience can make a difference. Unfortunately, it’s rarely that simple, so put serious thought into how you can resolve the underlying problems in a business asset before purchasing.
Consider Finance
Key to this, of course, will be the finance available to you. When you’re looking to free up the cash for a distressed acquisition, remember that you will need to cover more than just the purchase price. The costs of implementing a turnaround plan, and covering any losses until it takes effect, can be substantial. Also, customers and suppliers may make things challenging by looking to renegotiate contracts because of the changeover, or reducing trade credit. You’ll need to build this in to your projections, and ensure that you’re adequately financed to cover a couple of rough years.
It should be obvious at this stage that turning around a distressed business isn’t an easy task – that’s why turnaround artists get paid serious money. The potential gains from buying a failing business and making it succeed are substantial, but you need to understand what you’re doing and put a lot of work in. We guide many entrepreneurs through the process, and are happy to advise current or potential customers. Simply contact us [link] to set up an initial meeting.
Eamonn Garvey
