Download - Distressed Businesses
DISTRESSED BUSINESSESIf a company has confidence in its processes for addressing the
challenges, there can be a great opportunity in “Distressed Assets”
ContentsS No ParticularsS. No. Particulars
1. Introduction on distressed businesses
2 Wh t di t d t2. What are distressed assets
3. Potential opportunities of buying distressed businesses
4. Potential challenges of buying distressed businesses
5. Success factors
6. Due Diligence
7. Ramping up fund’s internal competencies
8. Factors of the distressed investing equation
9. Questions to ask before acquiring distressed assets
10. Where are the Indian opportunities coming from?
Distressed Businesses ‐ IntroductionA company is under distress at the time of:A company is under distress at the time of:
• Fall in market demand
• Funding & liquidity constraints• Funding & liquidity constraints
• Financial reporting issues
• Lack of formal controls• Lack of formal controls
• Bankruptcy
• RestructuringRestructuring
• Liquidation
• Over supplyOver supply
• Currency fluctuation
• Inability to size and scaleInability to size and scale
Distressed Assets
• Distressed Asset is a security belonging to a company that is under
financial distress
• Valuing, negotiating and acquiring distressed assets is a complicated,
high‐pressure, high‐stakes initiative filled with layers of potential risk
• Owing to greater complexity and heightened risk, distressed asset
investing requires a company to commit to greater management
capitalcapital
• With preparation, information and nerve, such investments can yield
rich awardsrich awards
Potential opportunities of buying distressed businesses
• Above average returns can be gained on deeply discounted assets
• Growth in market share, expansion of geographic or product footprint
and generation of new revenue steams
• Defensive measure against sales, market share, technology or process
falling into competitor’s hands
• Employees at underperforming companies can get highly motivated
• Often acquiring distressed businesses gives access to superior
technology or other elements within the supply chain
Potential challenges of buying distressed businesses
• Lack of insight on distressed businesses and their domain can cause the
acquirer to overpay
• Costly delays or chronic underperformance can be resulted due to lack
of experience
• If cost and effort of turnaround is under estimated, it can reduce the
return on investment
• Retention of core team
Success Factors
Negotiated Acquisition q
Price
Speed with which assetswhich assets
can be integrated
Know the end game
Due Diligence – a must
Financial Operational Legal
• Liquidity
• Cash burn
• Suppliers relations
• Customer
• Share holder’s agreements
• Working Capital management
• Debt covenants
relationship
• Execution ability
• Depth of
• Employee agreements
• Associates Debt covenants
• Going concern issues
• Credit agreements
Depth of management
• Expertise check
• Reviewing
agreements
• Article of association
• Memorandum of • Reviewing monitoring controls
• Market potential
association
Ramping up internal competencies
1. Develop supporting processes and governance
2. Senior management team that understands the goal and objective of
the acquisition
3. Ability to pin‐point appropriate targets
4. Understand the components of value and move forward with a due
diligence process and perfect intelligence
5. Valuation should be based more on expected deployment and not
historical data
6. Thorough knowledge of tax implications, various acquisition and
integration strategies and legal structures that enhances distressed
investing is must
Factors of the distressed investing equation
Price vs. Value Few experienced bidders
Fast action aiding to competitive advantage
Ability to leverage, merge and attract capital
Weighted opportunity vs. Risk Domain expertise in house
Know the steps from here and now to then and there
Deep commercial & operational Due Diligence
Ability to retain key talent & attract requisite talent
p
Questions to ask before acquiring distressed businesses
How did the company become distressed?1
What are the reasons for and against the distressed asset acquisition?2
Is the target over leveraged?
Should we buy the entire company or just its assets?4
3
What should our strategy be to acquire?5
How confident are we about company’s due diligence process?6
Contd.
In case of a cross‐border acquisition are we aware of all of the hostIn case of a cross border acquisition, are we aware of all of the host country’s governmental regulations?
How should the transaction be structured to maximize tax efficiency?
7
8
Do we have the ability to re‐deploy these assets to generate above‐average returns?9
What is our company’s risk tolerance?
Does my company fully understand the complicated tax implications 11
10
of a distressed asset acquisition?11
Contd.
Have we considered assumption of liabilities, supply contracts or
How do we expect to utilize the newly acquired asset compared to how it was used previously?12
13
Would the acquisition constitute an expansion of a core competence or a foray into an entirely new business line?
p , pp yleases in our bid?
14
13
or a foray into an entirely new business line?
What would our exit strategy be if the acquisition does not generate the necessary Return on Investment?15
Where are the Indian opportunities coming from?
A. Over supply business• Broadcast• Films
T til
D. Businesses unable to attain sizeand scale• Print Media
• Textile
B. Entry of global players
• Hospitals• Pharma• Mid‐sized IT and BPO
• Retail• Hospitality• Hospital & Health• care
E. Owner managed companies• Depth of management and
expertscare• Mid‐sized Pharma in API’s• Auto and Auto‐components
experts• Succession
F. Highly capital intensive C. Changing business environment
• IT• Travel
g y pcompanies• Auto‐ components• Manufacturing units
Contact Us
End of Document
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11th Road, Gufic Compound,MIDC, Andheri (E)( )Mumbai‐ 400093
For further queries:For further queries:Chandni Sahgal
+91 [email protected]: www.dessenceconsulting.com
