BayState Business Brokers Blog

Distressed Business Sale: Avoid bankruptcy and end up with money.

We may be able to sell your business even if it is distressed and not making much money.  A business that is close to business bankruptcy may still have a significant value - above the value of the hard assets. In many situations, the most valuable asset of the business is the customer base. And, there are many companies that will buy the business at a good price, particularly in a recession when even good companies are suffering from lower sales and it is hard to grow sales. We call these types of sales "fold-in acquisitions" since the acquiring company normally merges the business being sold into their existing business. There are two types of fold-in acquisitions - synergistic and/or strategic.

The most common fold-in acquisition is synergistic. Another company in the same industry buys the business and by combining the operations eliminates costs. These purchases are usually very profitable for the acquirer. A strategic acquisition is one where the increased profits are the result of the acquirer using an advantage of the acquired company. This could be entry into a new market or the acquisition of intellectual property that the acquirer can use to increase their sales or profits.

BayState Business Brokers has done a number of these types of business sales and usually there is a good market for the business being sold. It is not unusual to get multiple offers - at very different prices -- and close a deal quickly - within a few months. It is typical to get a payment at the closing, an earnout based on future sales, and employment for the seller.

These are also the type of business sale where a competent business broker, experienced in this type of sale, is needed. A FSBO (for sale by owner) can be disastrous. Here's why:

Confidentiality is even more important. If employees, customers, or suppliers learn that a company, in financial trouble, may be sold, they may leave. It is very difficult for an owner dealing directly with potential buyers, to keep the situation confidential.

To get the best deal in a business sale, it's important to introduce the business to the most potential buyers in order to get multiple offers. This requires a targeted search for buyers since most of the potential buyers are not actively looking for a business to buy. A business broker can do this search while maintaining the confidentiality of the business being sold.

Typically, if the business is in trouble, the owner is busy just trying to keep the business going. It is very difficult for the owner to deal with multiple buyers.  They are usually dealing with only one. And, that buyer, knowing the situation, may take advantage of it to force the seller into a bad deal.

In order to show a buyer the value of the business, a good written presentation, with recast financials based on the value to a strategic or synergistic buyer, is needed to get the best deal. A business broker can prepare this presentation.

Hopefully, your business is not close to business bankruptcy. But, if you are, contact us. We may be able to sell your business and avoid business bankruptcy.