OPPORTUNITIES IN STRUGGLING BUSINESSES
by Natalie Hughes Licensed insolvency practitioner, Simply Corporate
There is a variery of reasons why a business may be distressed and the fact that one is facing insolvency does not by itself mean that it is not worth considering.
An otherwise profitable business may have faced bad debts, the loss of one or more important contracts or been under the guidance of poor management.
In such cases, there might be a great opportunity waiting for the right investor or entrepreneur, who would be presented with two options.
The first would be to buy the assets, often from the insolvency practitioner, and the alternative would be to purchase the shares of the company.
Both routes have their own risks and rewards.
Asset purchase is often the preferred choice when seeking a quicker financial return.
Time constraints often see these
types of deals completed in a matter of days. However, this means that it is unlikely that there will be time to complete the full due diligence process.
Share purchase is often better suited for buyers able to commit to a longer-term involvement in the business.
Other factors to consider include whether you are looking to expand your operations or take the competitor out of the market.
Whether there be gaps left when the current management leave, and if you are able to fill them.
Timing and budget are also key, as the biggest discounts on valuation are often to be found pre-insolvency.
Ultimately, you should only buy a struggling business if you understand exactly why the business is currently in trouble and you have a clear strategy on how to turn it around. Expert advice is essential.
HEADING ON THE RIGHT TRACK
by Richard Bell Associate, Farleys
When buying a business, an initial step is to set out the principle terms of the agreement reached with the seller within a simple document known typically in the UK as the Heads of Terms (Heads).
In a simple deal this may be set out in an email whereas a complex transaction may require the Heads to be contained in a longer form.
Heads provide a strong moral commitment from each party in adhering to the agreed deal terms.
Whilst not an absolute requirement, Heads can be useful in providing the parties with clarity on the terms as agreed as well as avoiding mistaken assumptions.
Moreover, focusing on the complexities and agreeing potential deal-breaking issues at the outset, can assist in avoiding unnecessary cost and delay at a more crucial and damaging
point of the deal journey.
However, the parties must be careful not to get too bogged down with the routine and entry-level terms of a deal within the Heads; jeopardising timescales and the momentum to complete.
The parties should not allow the Heads to restrict further negotiations and movement on the terms where required (for example as a result of the due diligence process) as the transaction progresses.
Heads will not usually be legally binding, but can provide for binding commitments such as confidentiality, exclusivity in the case of the buyer and the payment of costs (especially where a party withdraws prematurely from a deal).
If carefully drafted Heads can prove valuable to the buyer of a business.
LANCASHIREBUSINESSVIEW.CO.UK For you, your family,
and your business
www.farleys.com
INSOLVENCY WE
Practical insolvency advice for directors & business owners
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www.simplycorporate.co.uk
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BUYING A BUSINESS
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