Tips in buying a business in administration
The desire of an administrator, liquidator or receiver/manager to sell a business fast creates opportunities for smart buyers as many distressed businesses are great bolt on acquisitions for companies who can gain access to new products and customers for a relatively low price.
However buying a business from an administrator will require an appetite for greater risk taking than a traditional acquisition for reasons including:
1. Speed – the administrator will generally want to sell the business fast, so you will need to have the ability (and the finance) to act quickly.
2. Limited information – often the administrator will not have access to the full range of information, that a typical business sale may be able to provide.
3. Warranties and restraints – the administrator is new to the business and has not verified the information provided to them, so they will usually not warrant the accuracy and completeness of information or enter into restraint arrangements. Do not expect that these will be available.
4. Simplicity – administrators are seeking a clean sale of the business. Avoid bidding for a business using structures such as deferred payment and earn outs as these are likely to be dismissed by the administrator wanting a fast, clean sale.
Because of the above risks and limitations, you should ensure that you undertake the necessary due diligence, take appropriate professional advice and factor the risks and opportunities into your bid price.
We keep a database of parties interested in receiving distressed business opportunities. Should you wish to be included for a general or specific business classification contact Peter Granger at peterg@endeavourcapital.com.au or 0412 522 501.
Endeavour Capital has developed a niche 3 step process of assisting insolvency practitioners to sell distressed businesses. As we are in the business of selling businesses we have access to multiple business listing sites, a database of investors as well as a search based marketing approach. Our systems and approach are designed to get insolvent businesses sold fast.