For some buyers, but not most, buying a distressed or troubled business can be the right move.
Buying distressed businesses is a risky acquisition strategy – but with potentially great rewards.
Recently a client of mine bought a business that was so troubled that it had been shut down altogether and “mothballed.”
My client knew about the business because he had performed services for it and he knew the former manager. He thought that the business was sound but had simply been steered into “rough waters” by its former owners. He believed the business was salvageable with a new name, a new facility, new capital and new leadership.
My client stepped in, assessed the business (or what was left of it), developed a business plan and acquired what assets of the shuttered business he could. It is my understanding that he has successfully breathed new life into the business.
Assuming my client succeeds in reviving and successfully growing this once moribund business, he will have acquired it for a fraction of what he would have paid during better times. Furthermore, he will likely also have added very substantial value since his asset purchase.
I compare this type of business acquisition to trying to catch a falling knife. Acquiring a distressed business is very risky and hence certainly not for everyone. But for those who can execute this strategy successfully, the rewards can be very substantial!
Industry experience and resources are key to succeeding with a distressed business acquisition.
Over the years we have assisted many clients with acquiring distressed or troubled businesses. Without doing a formal survey, it is my understanding that all of these clients were able to successfully turn their newly acquired businesses around and make a go of it.
Why? How? I believe that each of these buyers had enough industry experience that they were able to accurately assess and value a troubled business, buy it right, and then step in and make the operational changes necessary for the business to succeed. They also had sufficient resources to fund their businesses while they stabilized them and then turned them around.
Buying a distressed or troubled business can certainly be the right move, but this type of high risk project is certainly not for the inexperienced or the faint of heart!