Times are tough in the business world. Many business owners have directly or indirectly been impacted by the fallout and ongoing difficulties caused by COVID-19. Unfortunately, this has led many businesses to experience distress, however it does present opportunities for investors and established businesses to explore options to acquire businesses that may not be trading strongly or may be in difficulty. In this article, we will outline 3 things that we encourage potential buyers of distressed businesses to consider.
1. Know where to find distressed business opportunities
Potential buyers of distressed business opportunities should be aware of the myriad of places where they can find opportunities. These places include:
• Advertisements placed by liquidators and administrators in publications like the Australian Financial Review;
• Business for sale websites;
• Through building and maintaining relationships with insolvency practitioners, or;
• By making cold approaches to businesses.
2. Know what items to examine as part of due diligence
Potential buyers of distressed businesses should undertake due diligence on potential purchases prior to completion. Some of the items that they should examine as part of their due diligence include:
• Does anyone hold security over the assets of the company or business (like a bank or supplier);
• Will you buy the assets of the business or the shares in a company and what risks each option may pose to you, and;
• What will the business’ financial performance likely be under your ownership and how does this compare to its historical performance.
3. Know how to turn-around a distressed business post-purchase
Buyers of distressed businesses will always seek to improve the business’ financial performance and position after purchase, otherwise typically the purchase will not make commercial sense. So, how can this be done? We find the following strategies are useful to consider:
• Ensuring you purchase the business assets on an unencumbered basis to reduce or eliminate loan liabilities post-transaction and cut interest expenses;
• Look for opportunities to economies payroll expenses, and;
• Where you already own another business, look for opportunities to remove duplicate expenses.
Find Out More
Quinn M&As expert acquisition and due diligence advisors have significant experience in helping clients to undertake acquisitions of distressed businesses. If you require assistance in this area please call us on 1300 784 667 or email info@quinnma.com.au to schedule a complimentary initial consultation.
