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Distressed Businesses

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  • DISTRESSEDBUSINESSESIfacompanyhasconfidenceinitsprocessesforaddressingthe

    challenges,therecanbeagreatopportunityinDistressedAssets

  • Contents

    S No ParticularsS.No. Particulars

    1. Introductionondistressed businesses

    2 Wh t di t d t2. What aredistressedassets

    3. Potentialopportunitiesofbuyingdistressedbusinesses

    4. Potentialchallengesofbuyingdistressedbusinesses

    5. Successfactors

    6. DueDiligence

    7. Rampingupfundsinternalcompetencies

    8. Factorsofthedistressedinvestingequation

    9. Questionstoaskbeforeacquiringdistressedassets

    10. WherearetheIndianopportunitiescomingfrom?

  • DistressedBusinesses Introduction

    A company is under distress at the time of:A company is under distress at the time of:

    Fall in market demand

    Funding & liquidity constraints Funding & liquidity constraints

    Financial reporting issues

    Lack of formal controls Lack of formal controls

    Bankruptcy

    RestructuringRestructuring

    Liquidation

    Over supplyOver supply

    Currency fluctuation

    Inability to size and scaleInability to size and scale

  • DistressedAssets

    Distressed Asset is a security belonging to a company that is under

    financial distress

    Valuing, negotiating and acquiring distressed assets is a complicated,

    highpressure, highstakes initiative filled with layers of potential risk

    Owing to greater complexity and heightened risk, distressed asset

    investing requires a company to commit to greater management

    capitalcapital

    With preparation, information and nerve, such investments can yield

    rich awardsrich awards

  • Potentialopportunitiesofbuyingdistressedbusinesses

    Above average returns can be gained on deeply discounted assets

    Growth in market share, expansion of geographic or product footprint

    and generation of new revenue steams

    Defensive measure against sales, market share, technology or process

    falling into competitors hands

    Employees at underperforming companies can get highly motivated

    Often acquiring distressed businesses gives access to superior

    technology or other elements within the supply chain

  • Potentialchallengesofbuyingdistressedbusinesses

    Lack of insight on distressed businesses and their domain can cause the

    acquirer to overpay

    Costly delays or chronic underperformance can be resulted due to lack

    of experience

    If cost and effort of turnaround is under estimated, it can reduce the

    return on investment

    Retention of core team

  • SuccessFactors

    NegotiatedAcquisitionq

    Price

    Speedwithwhich assetswhichassets

    canbeintegrated

    Knowtheendgame

  • DueDiligence amust

    Financial Operational Legal

    Liquidity

    Cashburn

    Suppliersrelations

    Customer

    Shareholdersagreements

    WorkingCapital

    management

    Debt covenants

    relationship

    Executionability

    Depth of

    Employeeagreements

    AssociatesDebtcovenants

    Goingconcernissues

    Creditagreements

    Depthof

    management

    Expertisecheck

    Reviewing

    agreements

    Articleofassociation

    Memorandumof Reviewing

    monitoringcontrols

    Marketpotential

    association

  • Rampingupinternalcompetencies

    1. Develop supporting processes and governance

    2. Senior management team that understands the goal and objective of

    the acquisition

    3. Ability to pinpoint appropriate targets

    4. Understand the components of value and move forward with a due

    diligence process and perfect intelligence

    5. Valuation should be based more on expected deployment and not

    historical data

    6. Thorough knowledge of tax implications, various acquisition and

    integration strategies and legal structures that enhances distressed

    investing is must

  • Factorsofthedistressedinvestingequation

    Pricevs.Value Fewexperiencedbidders

    Fastactionaidingtocompetitiveadvantage

    Abilitytoleverage,mergeandattractcapital

    Weightedopportunityvs.Risk Domainexpertiseinhouse

    Knowthestepsfromhereandnowtothenandthere

    Deepcommercial&operationalDueDiligence

    Abilitytoretainkeytalent&attractrequisitetalent

    p

  • Questionstoaskbeforeacquiringdistressedbusinesses

    Howdidthecompanybecomedistressed?1

    Whatarethereasonsforandagainstthedistressedassetacquisition?2

    Isthetargetoverleveraged?

    Shouldwebuytheentirecompanyorjustitsassets?4

    3

    Whatshouldourstrategybetoacquire?5

    Howconfidentareweaboutcompanysduediligenceprocess?6

  • Contd.

    In case of a crossborder acquisition are we aware of all of the hostIncaseofacross borderacquisition,areweawareofallofthehostcountrysgovernmentalregulations?

    Howshouldthetransactionbestructuredtomaximizetaxefficiency?

    7

    8

    Dowehavetheabilitytoredeploytheseassetstogenerateaboveaveragereturns?9

    Whatisourcompanysrisktolerance?

    Doesmycompanyfullyunderstandthecomplicatedtaximplications11

    10

    ofadistressedassetacquisition?11

  • Contd.

    Haveweconsideredassumptionofliabilities,supplycontractsor

    Howdoweexpecttoutilizethenewlyacquiredassetcomparedtohowitwasusedpreviously?12

    13

    Wouldtheacquisitionconstituteanexpansionofacorecompetenceor a foray into an entirely new business line?

    p , pp yleasesinourbid?

    14

    13

    oraforayintoanentirelynewbusinessline?

    WhatwouldourexitstrategybeiftheacquisitiondoesnotgeneratethenecessaryReturnonInvestment?15

  • WherearetheIndianopportunitiescomingfrom?

    A. Over supply business

    Broadcast Films

    T til

    D. Businesses unable to attain size

    and scale

    Print Media Textile

    B. Entry of global players

    Hospitals Pharma Midsized IT and BPO

    Retail Hospitality Hospital & Health care

    E. Owner managed companies

    Depth of management andexpertscare

    Midsized Pharma in APIs Auto and Autocomponents

    experts Succession

    F. HighlycapitalintensiveC. Changingbusinessenvironment

    IT Travel

    g y pcompanies

    Auto components Manufacturing units

  • ContactUs

    EndofDocument

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    11th Road,GuficCompound,MIDC,Andheri(E)( )Mumbai 400093

    For further queries:Forfurtherqueries:ChandniSahgal

    +919820075332chandni@dessenceconsulting.comURL:www.dessenceconsulting.com