Diamonds in the Rough: Selling Distressed Businesses

Corporate Finance & Restructuring

February 28, 2019

winding river

Transacting a business that is experiencing some form of distress requires an approach different to that normally adopted in a business sale. Time is often of the essence and an objective approach to key matters such as valuation is needed. Keeping a careful eye on trading, and continuing to run the business, is critical to preserving going concern value.

In this article, Mike McCreadie and Drew Forbes look at some of the key points for selling a business in financial distress.

Can you survive and is there anything saleable?

Before fully committing to the sale process, it’s advisable to take time for inward reflection – after all, any distressed seller will at some stage need to ask the tough questions of themselves, including whether their business is saleable, or whether it should simply cease trading. To do so, sellers should assess whether their business is distressed due to a select number of discrete factors that can be dealt with through a sale process, or are there more fundamental, systemic problems with the business which are not capable of being resolved?

It is however important to keep an open mind in this process – factors such as onerous leases, supply contracts or licence agreements for example, which many vendors would consider roadblocks to a sale, could all be dealt with expeditiously through an external administration.

Spending some time thinking about what is salvageable and saleable will also assist in marketing the business, forming a view on value and identifying buyers. Sellers should consider what the real market value of their assets might be and where the intrinsic value in the business lies – i.e. in longstanding customer relationships, product patents or reputation. Conversely, if for example the real value of the business is tied up in the name, reputation and expertise of the individual vendors, achieving a sale could be difficult.


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