High level of distressed companies in the UK an opportunity for some

Analysts at investment banking and advisory firm, Close Brothers, have reported that the UK is home to more distressed companies than any other country in Western Europe, with 24% of all distressed assets based here.

This was well ahead of Germany, which was ranked in second place with 14% of distressed companies, and Italy who came in third with 12%. France had just 6% of distressed companies in Europe.

Andrew Cunningham, Managing Director of Close Brothers, said: "It comes as little surprise that the UK has the highest portion of troubled businesses given the greater leverage taken on during the bubble years of private equity. Many of the businesses' operations are multi-jurisdictional - but the centre of gravity of any restructuring remains in the UK due to the profile of the creditors". From January 2000 to July 2009, the UK accounted for 34% of all leveraged buy-outs.

Hardest hit over the past three years has been the manufacturing sector, with 41% of all distressed companies. Although the largest employer, it accounts for only 15% of European GDP. This is mainly due to the fact that a higher proportion of its cost base is fixed, than other sectors. According to Cunningham, "it is facing the most serious issues, the long-term consequences of which will have detrimental effects for many years to come. The primary objective for many companies in the short term is survival." The retail and leisure sectors have also been badly hit, with 19% of companies in this sector reported to be in distress.

Restructuring specialists, Begbies Traynor, published a Red Flag Alert study showing that over the past three months, the number of companies with serious financial problems was up 43% on the same period last year, adding that many companies with such problems tend to enter administration within a year.

Ric Traynor, the company's Executive Chairman, said that the number of UK corporate insolvencies could exceed the peak levels witnessed at the height of the last major recession in the UK in 1992.

He said, "The second quarter Red Flag Alert shows the recession is likely to be prolonged, possibly more prolonged than the last recession, and there is no evidence yet of a real recovery emerging."

Traynor continues: "We believe that the volumes of corporate and personal insolvencies, as with levels of unemployment, tend to be indicators that lag any change in economic activity and are therefore likely to continue to rise for up to two years after the commencement of recovery."

Begbies named the retailing, engineering, manufacturing and print and packaging sectors as having all faced serious financial problems in the last three months.

Moody's, the rating agency, has also warned that although there are signs that the global economy is stabilising, most sectors will face significant hurdles to recovery, especially automotive manufacturers, and the retail and consumables sectors.

Corporate-turnaround specialists, Tenon Recovery, reckon that as many as 3000 small firms will fall into insolvency in the UK in October.

With stock prices at an all-time low, now may be a good time for companies pick up a bargain and buy assets at distressed prices.

Tips for selling a business in a recession

Common logic dictates that it's better to buy than to sell during a recession, when prices are low. That's certainly the logic that prevails in the property market, but is it also true of selling a

business? Well yes, but sometimes businesses just have to be put on the market there and then.

Certainly it can be a challenge to sell a business and get the terms you want, but it can be done.

The first thing you should do if you want to sell your business during a recession is to demonstrate that your company can show profitability in the peaks AND troughs of the economic cycle.

You should also prepare a plan that you can show to prospective buyers, detailing the growth potential of the business.

Finally, you must be prepared to negotiate payment terms. It's a lucky seller indeed who can persuade a buyer to part with 100% of the money upfront, especially in the current climate. It's more realistic that a buyer will want to negotiate staged payments or even an earn-out period.

Vendor-financed deals are common in this climate, and if this is something you want to pursue, you should certainly talk to a professional advisor about the best way to structure the deal.



Tips for selling a business in a recession

Common logic dictates that it's better to buy than to sell during a recession, when prices are low. That's certainly the logic that prevails in the property market, but is it also true of selling a

business? Well yes, but sometimes businesses just have to be put on the market there and then.

Certainly it can be a challenge to sell a business and get the terms you want, but it can be done.

The first thing you should do if you want to sell your business during a recession is to demonstrate that your company can show profitability in the peaks AND troughs of the economic cycle.

You should also prepare a plan that you can show to prospective buyers, detailing the growth potential of the business.

Finally, you must be prepared to negotiate payment terms. It's a lucky seller indeed who can persuade a buyer to part with 100% of the money upfront, especially in the current climate. It's more realistic that a buyer will want to negotiate staged payments or even an earn-out period.

Vendor-financed deals are common in this climate, and if this is something you want to pursue, you should certainly talk to a professional advisor about the best way to structure the deal.


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