Distressed Acquisitions

July 07, 2024

by a searcher from University of Pennsylvania - The Wharton School in New York, NY, USA

I'm curious if anyone has searched for and found acquisitions that are distressed--sort of the antithesis of what is typically thought of as the ideal acquisition target. Given my focus on restructuring, I'm interested in looking at companies with targets distressed profiles and/or executive turnaround roles. Happy to discuss with folks, particularly around collaborations.

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Reply by a searcher
from The University of Georgia in Austin, TX, USA

I've operated two distress businesses... Completed a turnaround at one company. Laid off the entire staff and shuttered the business at the other. Be prepared for a lot of stress and a high allocation of your time to simply tracking/forecasting your business' cash flow... otherwise you won't make payroll. Then, if/when you've finally completed the turnaround, your 'holding period' clock will officially start. Any legitimate buyer is going to want to see a history of positive company performance, so you likely will need to operate the business for 3+ years, on top of the turnaround time..... I'm sure there is value to be found - just be prepared and fully understand what you are signing up for. My two cents.

Reply by an intermediary
from University of Oxford in Washington, DC, USA

Distressed deals provide great opportunities. We have participated in six distressed situations in the past decade. The key is to understand that as the investor/ buyer, you are providing a lifeline to the current owner and structure the deal accordingly. Sometimes the seller needs someone to make the hard decisions they are either unwilling or unable to make. All cash put into the deal should be used to right the ship. NOTHING should go to the distressed equity holders until the business has been turned around. We learned this the hard way.

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