Finding a Business For Sale That's a Deal - May Not Be Easy!
A few years ago, I thought that finding a small business that
was close to bankruptcy, or in receivership or a retiring family
business would be a perfect acquisition. The problem is, how do
you identify a business that is in one of those circumstances? I
did a lot of research and this is what I discovered.
Bankruptcy & receiverships - Banks very seldom put businesses
into bankruptcy! They seize their security interest (the assets
that were pledged for the loan) and try to sell them. In North
America, the banks are very slow to do anything and usually by
the time they seize the assets and put in a receiver there is
little left of the business, employees and customers are gone.
Trying to buy the security interest from a bank is usually
complicated by personal guarantees issued by the previous owner.
The trustee (on behalf of the creditors) must insure that he
gets a fair price for all of the assets because the previous
owner will probably have to make up the difference. This is one
of the primary reasons that trustees like public auctions.
They can stand back and say that they received the best price
they could in an open market competition. If they make a deal
with an individual or company to buy the assets the previous
owner could say that the trustee did not use their best efforts
in obtaining maximum value for the assets and they could use
that in a court to try to avoid utilizing their personal
guarantee. Secondarily, there is the situation with
confidentiality within banking and trustee circles. No one will
tell you in advance of a potential asset seizure. Any advanced
indication that a company may be on the verge of having its
assets seized could in fact be stated as the reason for its
demise. It is important to remember that once a bank decides to
put in a trustee they have already written the loan to zero, so
anything they get is a bonus.
Retiring family business and active partner - This is quite a
different situation. These should be listed in the normal
classified sections of newspapers and on websites. It would be
advantageous to be aware of them prior to hitting the open
market. I have discovered another route and that is
"networking". Make sure that your accountant, insurance agent,
lawyer, stockbroker, banker, and anyone else, dealing with small
business on a regular basis is aware of your hunt. Send emails,
write letters to all of the business accountants and business
lawyers tell them of your interest and define some criteria.
This group of people are the financial confidants of small
business owners, they will be the first to be aware of people
considering selling or looking for partners. Although none of
these people will generally give you a direct lead, a banker
might tell a client that is having financial difficulties that
he may know of someone who might be interested in being a
partner; the same scenario applies to the others. Another method
is for you to advertise in the classifieds (use a box number or
secondary email address for replies).
In any case remember that due diligence is the key! I cannot
over emphasize that. Over the years, I have been involved in
hundreds of acquisitions and can relate horror stories with
respect to businesses that have been set-up for sale, and not as
advertised.