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Buying / Acquiring and financing a business in Canada might be viewed by some as a ' cake walk '! They might even say it's as easy as ' ABC ' as the saying goes. But what about if after that 'ABC ' comes ' D '... A distressed or turnaround situation? That's when real challenges arise, so if you or your firm sees opportunity in that type of transaction there's some solid tips and assistance we think we can provide. Let's dig in! More often than not the ability of the business owner or manger to capitalize on a distressed business / turnaround situation revolves around the tremendous upside they see relative to price and potential capital and profit appreciation. The challenge though is recognizing clearly that the distress and challenges the firm you're looking at probably came over a long period of time - sometimes years -so thinking about realistically how quickly you can reverse that situation is well worth the thought! In some cases there are some pretty good companies out there that are plain and simple poorly financed, and by that we mean their overall capital structure. So while they might be profitable, even growing the debt load and cash flow and working capital issues become somewhat of a crisis situation. Typically you want to ensure the company can have adequate working capital facilities in place. This can be accomplished by looking at solutions such as: New bank arrangements
Non Bank commercial credit facilities
Receivable and inventory financing
Purchase order/Supply chain finance
Sale leaseback of assets
Government SBL Business loan etc.! One other common exercise that provides great value is to in fact examine the ' true value ' of the assets as opposed to current book values that are driven by accounting issues such as deprecation policies, etc. You might find that the true ' net worth ' of the business is in fact a negative number, at which point a solid strategy might be to put in an offer to simply take over the debt of the company, perhaps accompanied by some sort of ' royalty arrangement ' to current owners or management . We, unfortunately, meet a lot of clients who mistakenly are under the impression that businesses can be bought with no money down, ie no new owner equity. While that certainly might be a dream of some, it's not reality as we see it! Even if you assumed ownership with no new equity the downside of any existing debt is surely a challenge, as well as all the other operational, employee and client and vendor relationships that come with distressed type business acquisition opportunities. Remember also that it's difficult, if not close to impossible in Canada to finance share sales, so while they might be highly desirable by the seller, they are very ' unfinanceable' by you, the buyer! One quick strategy in Canada to uncover potential problems in acquiring a distressed company is to have your lawyer (or you can do it yourself) run what is known as a PPSA search. This search identifies secured creditors and other liens that you wish to know about. Trust us on that one! Another quick technical point in this area is to ensure you comply with the ' BULK SALES ACT ' when you're acquiring assets - as it gives creditors of the business, as well as yourself, the comfort that things have been done properly. We're told that Warren Buffet was once quoted as saying turnarounds ' seldom succeed '. We're not so sure of that, as we've seen some great ones over the years, but we encourage clients to seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in properly buying/acquiring and financing a distressed business in Canada with a solid chance of upside longevity. Stan Prokop - founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 85 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info re: Canadian business financing & contact: http://www.7parkavenuefinancial.com/buying-financing-acquiring-distressed-business.html
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