In search of bargain businesses
Many struggling businesses will be on the hunt for buyers during the next few months. For a lucky few with good turnround skills, such bargain businesses may turn into lucrative opportunities. But with so many business owners desperate to sell, how can you tell whether you are about to get a good deal or a turkey?
THE TURNROUND EXPERT
Assets that seem inexpensive are damaged and represent an investment risk rather than a bargain. Most are illiquid and their shareholders are unable or unwilling to provide the necessary funds.
Discriminating between the worthwhile acquisitions and the dogs requires careful due diligence and negotiating skills, but time is often short. Structure the transaction to balance the risks inherent in a rushed deal.
One such risk is financial. This may be finding concealed or contingent liabilities, or the risk of the funds you invest being claimed immediately by lenders or other dominant creditors. Moderate this risk by deferring payment to existing shareholders but also negotiate a standstill agreement with the larger creditors.
A more immediate risk is managerial. In turbulent times the management task changes significantly. Turning a business round is a specialist skill and you should consider employing someone who has this expertise.
Also worth considering is the future managerial risk of having the incorrect person in charge as the business recovers. To develop profitably, the acquired business will probably require additional investment and need a different management skill to take the business forward.
The writer is a corporate turnround specialist and author of Managing Through Turbulent Times.