You are on page 1of 15

DISTRESSEDBUSINESSES

Ifacompanyhasconfidenceinitsprocessesforaddressingthe
challenges,therecanbeagreatopportunityinDistressedAssets

Contents
S No
S.No.

Particulars

1.

Introductionondistressed businesses

2
2.

Wh t aredistressedassets
What
di t
d
t

3.

Potentialopportunitiesofbuyingdistressedbusinesses

4.

Potentialchallengesofbuyingdistressedbusinesses

5.

Successfactors

6.

DueDiligence

7.

Rampingupfundsinternalcompetencies

8.

Factorsofthedistressedinvestingequation

9.

Questionstoaskbeforeacquiringdistressedassets

10.

WherearetheIndianopportunitiescomingfrom?

DistressedBusinesses Introduction
A company is under distress at the time of:
Fall in market demand
Funding & liquidity constraints
Financial reporting issues
Lack of formal controls
Bankruptcy
Restructuring
Liquidation
Over supply
Currency fluctuation
Inability to size and scale

DistressedAssets

Distressed Asset is a security belonging to a company that is under


financial distress

Valuing, negotiating and acquiring distressed assets is a complicated,


highpressure, highstakes 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

capital

With preparation, information and nerve, such investments can yield


rich awards

Potentialopportunitiesofbuyingdistressedbusinesses

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 competitors 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

Potentialchallengesofbuyingdistressedbusinesses

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

SuccessFactors

Negotiated
q
Acquisition
Price

Speedwith
which assets
whichassets
canbe
integrated

Knowthe
endgame

DueDiligence amust

Financial

Operational

Liquidity

Suppliersrelations

Cashburn

Customer

WorkingCapital
management
Debt covenants
Debtcovenants
Goingconcernissues
Creditagreements

relationship
Executionability
Depth of
Depthof
management

Legal
Shareholders
agreements
Employee
agreements
Associates
agreements

Expertisecheck

Articleofassociation

Reviewing
Reviewing

Memorandumof
association

monitoringcontrols
Marketpotential

Rampingupinternalcompetencies
1. Develop supporting processes and governance
2. Senior management team that understands the goal and objective of
the acquisition
3. Ability to pinpoint 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

Factorsofthedistressedinvestingequation
Pricevs.Value

Fewexperiencedbidders

Abilitytoleverage,mergeand
attractcapital

Fastactionaidingtocompetitive
advantage

Weightedopportunityvs.Risk

Domainexpertiseinhouse

Deepcommercial&operationalDueDiligence
Knowthestepsfromhereandnowtothenandthere
p
Abilitytoretainkeytalent&attractrequisitetalent

Questionstoaskbeforeacquiringdistressedbusinesses

Howdidthecompanybecomedistressed?

Whatarethereasonsforandagainstthedistressedassetacquisition?

Isthetargetoverleveraged?

Shouldwebuytheentirecompanyorjustitsassets?

Whatshouldourstrategybetoacquire?

Howconfidentareweaboutcompanysduediligenceprocess?

Contd.

Incaseofacross
In
case of a crossborder
borderacquisition,areweawareofallofthehost
acquisition are we aware of all of the host
countrysgovernmentalregulations?

Howshouldthetransactionbestructuredtomaximizetaxefficiency?

Dowehavetheabilitytoredeploytheseassetstogenerateabove
averagereturns?

10

Whatisourcompanysrisktolerance?

11

Doesmycompanyfullyunderstandthecomplicatedtaximplications
ofadistressedassetacquisition?

Contd.

12

Howdoweexpecttoutilizethenewlyacquiredassetcomparedto
howitwasusedpreviously?

13

Haveweconsideredassumptionofliabilities,supplycontractsor
p
, pp y
leasesinourbid?

14

Wouldtheacquisitionconstituteanexpansionofacorecompetence
or a foray into an entirely new business line?
oraforayintoanentirelynewbusinessline?

15

Whatwouldourexitstrategybeiftheacquisitiondoesnotgenerate
thenecessaryReturnonInvestment?

WherearetheIndianopportunitiescomingfrom?
A. Over supply business

Broadcast
Films
T til
Textile

D. Businesses unable to attain size


and scale

B. Entry of global players

C.

Retail
Hospitality
Hospital & Health
care
Midsized Pharma in APIs
Auto and Autocomponents

Changingbusinessenvironment

IT
Travel

Print Media
Hospitals
Pharma
Midsized IT and BPO

E. Owner managed companies

F.

Depth of management and


experts
Succession

Highlycapitalintensive
g y p
companies

Auto components
Manufacturing units

ContactUs
EndofDocument
D Essence Consulting
DEssence
303,AarPeeCenter,
11th Road,GuficCompound,
MIDC,Andheri(E)
( )
Mumbai 400093

Forfurtherqueries:
For
further queries:
ChandniSahgal
+919820075332
chandni@dessenceconsulting.com
URL:www.dessenceconsulting.com