Still Cheap at Half the Price? Acquiring and Integrating Distressed Businesses

Still Cheap at Half the Price? Acquiring and Integrating Distressed Businesses

So here we are once again on the brink of a potential severe economic downturn; while many will be understandably focused on how to weather the storm over the coming months, both personally and professionally, some – particularly those with strong balance sheets and an appetite for risk and opportunity – will be considering how they might find opportunity as soon as a degree of certainty emerges. Just as in the last severe downturn in 2007-9, once the current crisis clears – whenever that is – the global business landscape will comprise organisations struggling to maintain positive liquidity, and those ready to acquire them at bargain prices.

But as ever, the ability to buy does not denote readiness to own. In fact, distressed acquisitions present an ever larger disconnect between these two aspects of M&A as the ability to buy may be increased, while the readiness to own – or rather, the ease of recovering or improving it – will be significantly lower.

Which brings me to a Beyond the Deal white paper originally written in 2009 on the topic, titled “Cheap at Half the Price – The challenge of acquiring and integrating a distressed business”. ‘But it’s way too early to be thinking of this topic!’ I hear you ask? Perhaps, but given the opportunity M&A and integration specialists now have over the coming weeks or months to review and refresh their own internal M&A and integration approaches and processes, some tips from the original paper might be useful now as we ponder how to make the best use of the ‘enforced internal work’ many of our clients are experiencing. Key tips in integrating distressed acquisitions included:

  • Look beyond the immediate temptation to ‘cover yourself’ by conducting more exhaustive legal, financial and commercial due diligence;
  • Get to the root cause, and symptoms, of the internal issues that led to the distressed sale, and design them out of the combined business;
  • Make sure you get visibility and control of costs from Day 1;
  • Understand and prepare for legal, regulatory and operational compliance issues from Day 1;
  • Embed recovery/turnaround directly into your integration plan;
  • Prepare for attempts to exploit the situation at your expense;
  • Plan your communications and engagement processes in detail before Day 1;
  • Confirm the previous management team’s individual roles in the new business as early and quickly as possible.

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