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Global value creation stories
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©2023 Eight International
eight insights
Fix, sell, or buy?
The global economy has endured a series of shocks in the past three years. Just as we emerged from a series of pandemic-related lockdowns, war broke out in Ukraine, triggering runaway inflation. Many businesses are putting contingency plans in place to survive the storm.
One solution is to turn around an underperforming business. For others, the prospect of a looming recession means selling, probably at a loss. But one person’s loss is another’s gain – and with an estimated US$1.3 trillion of ‘dry powder’ still available in the coming two years, there are plenty of funds able and willing to acquire businesses as interest rate hikes start to take hold.
Economic crisis or not, restructuring an underperforming organization is often a good way forward. But time is not your friend: it’s important to anticipate or identify the first signs of distress. Indicators to watch out for include turnover problems (financial and staff), cash flow issues, supply chain problems, and an increase in disputes and accidents.
Having spotted these indicators, the next step is to maintain or improve the liquidity and profitability of the business and ensure it can adapt quickly and resiliently to the new situation. Then it’s a matter of swiftly carrying out the turnaround plan. When it comes to turnarounds, means differ, but the end goal is usually the same: protect and optimize your business and minimize negative impacts.
Turning an ailing business around
Download
the white paper
To learn about the key phases of a turnaround plan and how to find the best solution for different situations, check out our white paper on Turning underperforming businesses around.
Carve-out programs are always complex, no matter how much planning and preparation goes into them – but separation complexity is greater in a distressed carve-out. That’s because the environment isn’t stable, there’s less management oversight, and it’s easier for things to go wrong. Moreover, there’s less time to go over the details, and often there’s less seller involvement.
Nevertheless, whether you’re the unlucky owner forced to sell at a loss or the lucky buyer capitalizing on a discounted deal, there are a number of conditions that will help both parties benefit. For instance, in a distressed carve-out:
… sellers are not always as focused on supporting the sale, and their resources, cash, and people may be constrained.
… separation documentation is often not as comprehensive. Buyers will need to make more assumptions during due diligence because not all questions raised in the Q&A process will be answered.
… sellers often assume they will be selling to a corporate buyer. As a result, they don’t always adequately prepare the asset for sale to a financial sponsor.
… buyers have less confidence in the delivery of transitional services – sellers are restructuring their operations much more materially than during a post-sale right-sizing.
… there’s plenty of inevitable stress: people are working with less information than usual to tighter timescales in an environment of uncertainty. That leads to mistakes. People are also less predictable and less cooperative than they would be in a normal carve-out program.
… buyers beware! The acquisition market is likely to be different from recent years, so specialized firms may benefit from their well-trodden paths to success.
Navigating the changing landscape of distressed carve-out deals
Download
the white paper
Interested to learn more? Our white paper on Distressed carve-outs contains eight easy-to-digest pointers for buyers and sellers alike, as well as a useful method for successfully navigating the process.
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What’s trending in M&A
Download
the white paper
Interested to learn more? Our white paper on Distressed carve-outs contains eight easy-to-digest pointers for buyers and sellers alike, as well as a useful method for successfully navigating the process.
Carve-out programs are always complex, no matter how much planning and preparation goes into them – but separation complexity is greater in a distressed carve-out. That’s because the environment isn’t stable, there’s less management oversight, and it’s easier for things to go wrong. Moreover, there’s less time to go over the details, and often there’s less seller involvement.
Nevertheless, whether you’re the unlucky owner forced to sell at a loss or the lucky buyer capitalizing on a discounted deal, there are a number of conditions that will help both parties benefit. For instance, in a distressed carve-out:
… sellers are not always as focused on supporting the sale, and their resources, cash, and people may be constrained.
… separation documentation is often not as comprehensive. Buyers will need to make more assumptions during due diligence because not all questions raised in the Q&A process will be answered.
… sellers often assume they will be selling to a corporate buyer. As a result, they don’t always adequately prepare the asset for sale to a financial sponsor.
… buyers have less confidence in the delivery of transitional services – sellers are restructuring their operations much more materially than during a post-sale right-sizing.
… there’s plenty of inevitable stress: people are working with less information than usual to tighter timescales in an environment of uncertainty. That leads to mistakes. People are also less predictable and less cooperative than they would be in a normal carve-out program.
… buyers beware! The acquisition market is likely to be different from recent years, so specialized firms may benefit from their well-trodden paths to success.
Navigating the changing landscape of distressed carve-out deals
Download
the white paper
To learn about the key phases of a turnaround plan and how to find the best solution for different situations, check out our white paper on Turning underperforming businesses around.
Economic crisis or not, restructuring an underperforming organization is often a good way forward. But time is not your friend: it’s important to anticipate or identify the first signs of distress. Indicators to watch out for include turnover problems (financial and staff), cash flow issues, supply chain problems, and an increase in disputes and accidents.
Having spotted these indicators, the next step is to maintain or improve the liquidity and profitability of the business and ensure it can adapt quickly and resiliently to the new situation. Then it’s a matter of swiftly carrying out the turnaround plan. When it comes to turnarounds, means differ, but the end goal is usually the same: protect and optimize your business and minimize negative impacts.
Turning an ailing business around
One solution is to turn around an underperforming business. For others, the prospect of a looming recession means selling, probably at a loss. But one person’s loss is another’s gain – and with an estimated US$1.3 trillion of ‘dry powder’ still available in the coming two years, there are plenty of funds able and willing to acquire businesses as interest rate hikes start to take hold.
The global economy has endured a series of shocks in the past three years. Just as we emerged from a series of pandemic-related lockdowns, war broke out in Ukraine, triggering runaway inflation. Many businesses are putting contingency plans in place to survive the storm.
Corporate website
©2023 Eight International
Global value creation stories
eight insights
Fix, sell, or buy?
