Deal Insight Series:

Distressed businesses – what you need to know about them

In this video of our Deal Insight Series, Kevin Counihan from SIA Group talks to us about some of the aspects involved in valuing and selling a distressed business

The transcript of the interview follows:

How do you go about valuing a distressed business?

We normally get the instruction directly from an insolvency practitioner, but sometimes it comes from the company. We’ll visit the premises and interview the directors. The information we gather isn’t extremely detailed. We’ll look at the financial accounts, management accounts, asset information, any leases, hire purchase agreements – anything like that. We’ve got a normal checklist that we go through. Obviously, we process it back then we provide a report, either to the insolvency practitioner or the business. Then, from there, we have our recommendations on marketing, strategies, etc. to follow.

After being instructed to sell a distressed business, roughly how long does it take to sell?

A lot of the time it will come down to what credit pressure is involved in the distressed businesses. If you’re instructed by the company, then there’s more time. Generally speaking we take two weeks for marketing – that’s the minimum period for statutory requirements. So, we wouldn’t like anything less than two weeks, but even two weeks is a push, because the ideal time is probably four weeks. That gives you a few days to get the information together, get it out and at least two weeks for people to come back and register their interest. Once we’ve got the registered interest, then we will set a deadline for offers, depending on various things like: when the person is to be appointed, what type of process it’s going to be, or what decisions the directors or company want to make.

Is there usually a deal done before a business goes into administration?

Very rarely. In a distressed scenario we’re selling the business and assets. We’re not selling the company. If a deal’s to be done prior to the formal process, someone will have to buy the company or buy their shares. Nine times out of 10, that’s not a viable option, which is why we’re in this situation in the first place. Obviously, if you buy the company, you’re taking on the liabilities as well. It does happen, and there are various reasons why it might happen. For example, you might want a heavy goods operator’s licence which is non-transferable, you might have issues with the landlord, it might be a spec’d out building and the landlord won’t give an assignment. So, there are reasons why you might want to take the company and the liabilities, but generally speaking, they are quite rare.

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Kevin Counihan is Head of London Restructuring at SIA Group. SIA Group are specialists in valuing and selling distressed companies and assets.

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