UK: Buying A Business In Distress? It’s Time To Consider The AA…

Last Updated: 24 March 2010
Article by Mark Boughey

When buying a failing business, seeking some distressed acquisition assistance will give you the best chance of success.

While we now know that 2009 was unprecedented in terms of the banking and economic crisis, it takes a brave economist to make predictions on the prospects for 2010. Some foresee a 'V' recession, others a 'W'; certain forecasts are more optimistic than others and we are still braced for a wave of business failures. The most honest confess they are only making a qualified guess.

While we're sure that insolvency practitioners will be busy in 2010, it is unclear exactly how busy. One thing we will predict is that 2010 will also be a year of opportunity for certain groups of investors, buyers and management teams actively looking to acquire distressed businesses and assets.

The reasons for business failure are wide and varied. Some of the businesses we have dealt with this year have failed due to lost customer orders, low consumer confidence, over-leveraged balance sheets or poor management. In many instances, however, there is a core profitable business or team of people worth rescuing.

When buying a business in distress, the potential acquirer may be in a competitive situation, will certainly need to act quickly and is likely to be dealing with an insolvency practitioner, their specialist insolvency lawyer and probably a business support bank manager. While the usual fundamentals of a 'corporate finance' type transaction will apply, the playing field and rules can be very different. Therefore, a purchaser will be most likely to succeed in winning and completing the transaction in a quick timeframe and for the right price if they have a strong team of advisers on board and sign up for some distressed acquisition assistance (AA). Here is a brief look at some of the benefits.

What's in the toolbox?

Distressed AA can be flexible and tailored to fit the specific circumstances of the deal. It is about pulling together an advisory team which builds on the strengths of the existing corporate finance advisers and the needs and experience of the buyer and transaction.

For example, distressed sales may involve the buying of a 'business and its assets' rather than shares, so an insolvency specialist can be introduced to help structure the deal and sale consideration in a way that would be expected and on terms that are most likely to be accepted by the seller.

Distressed funders and investors will also be a key part of the AA team, and the insolvency practitioner will be able to introduce these parties quickly, with an up-to-date knowledge of their capacity and appetite to deliver funding solutions in the tight time scales required.

Qualified mechanics?

The advisory team can be very broad. For example, Smith & Williamson has access to corporate financiers, insolvency specialists, tax advisers and sector experts, who will be used depending on the needs and demands of the transaction. It is also not uncommon to introduce an independent specialist to the team, such as a turnaround director, who can help identify and repair the operational or accounting problems in the business that may have caused its downfall. Organisations such as the Institute for Turnaround (IFT) offer access to a good network of accredited and experienced turnaround professionals.

Be there in an hour?

Time is of the essence in any distressed sale, so it is important to get your distressed AA adviser to the scene of the deal as soon as possible. Most insolvency specialists are used to working at short notice and to tight deadlines, so the call will be welcome and your chosen adviser responsive.

What services are provided and how much will it cost?

Assistance needn't be expensive and fees will reflect the size and complexity of the transaction. Your distressed AA team can be engaged to deal with the full transaction, or have a role tailored to specific pieces of work such as cashflow reviews or acting as a facilitator for the buyer between the incumbent insolvency practitioner, the company, the specialist lawyers and the business support manager in the bank. All these parties will take comfort in dealing with a buyer who is advised by a professional familiar with the workings and terms of the Insolvency Act and distressed sales generally.

How do I sign up?

Smith & Williamson is, of course, a good first point of contact, but the buyer's existing banker, accountant or lawyer will be able to help refer the right people to the situation at, hopefully, the right time. Even better, talking to the directors or investors in your network who may have been through this process and successfully worked with distressed AA advisers will offer a first-hand recommendation. We have a few we can introduce you to.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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