Tips for evaluating a (distressed) business
With the difficult economic climate, businesses are starting to go to the wall. This can provide an opportunity for savvy investors looking to buy low and turn a profit. However, attempting to quickly “cherry-pick” assets is (obviously) risky. These are some of the most important considerations:
Are there any secured creditors and what conditions will they impose on you owning the critical items? Could they lay claim to any essential trading stock? Are there any licences or other regulatory approvals which are critical to the business and/or it having a new owner?
In addition to websites and trademarks, is there any IP (including any being used under licence) that must be assigned to you?
If remaining in the existing location(s) is crucial, how much of the current Term(s) are unexpired and when are the renewal dates? What are the obligations on termination? Are there any onerous new conditions accompanying the assignment of the lease to you? Are there any contamination or other environmental issues to be considered?
For the staff you want to retain, have there been any investigations or conduct-related issues? What are the current terms of employment (including benefits)?
Will the business’ key suppliers work with you? On what basis? Would you like to retain any of the current agreements (or aspects of them)? Are there any orders in transit (including international) that you wish to secure?
Do any have the option to stop trading with the business because of the vendor’s financial position or if there is a change in control?
It is important that purchasers conduct thorough due diligence before going unconditional on any purchase. Our corporate and commercial team are highly experienced in this area. We can help you “look under the hood” and guide you through the entire process from expressing an interest to completing the transaction. Please get in touch with our team to learn more.