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Economic changes wrought by the COVID-19 pandemic, along with other factors, drove historic global mergers and acquisitions (M&A) activity in 2021. Experts expect 2022 to be another busy year for dealmaking.<\/p>\n
In many cases, M&A opportunities arise when a business adversely affected by economic circumstances decides that getting acquired by another company is the optimal \u2014 or only \u2014 way to remain viable. If you get the chance to acquire a distressed business, you might indeed be able to expand your company\u2019s operational scope and grow its bottom line. But you\u2019ll need to take due care before closing the deal.<\/p>\n
Looking at the long term<\/strong><\/p>\n Although so-called \u201cturnaround acquisitions\u201d can yield substantial long-term rewards, acquiring a troubled target can also pose greater risks than buying a financially sound business. The keys are choosing a company with fixable problems and having a detailed plan to address them.<\/p>\n Look for a business with hidden value, such as untapped market opportunities, poor leadership or excessive costs. Also consider cost-saving or revenue-building synergies with other companies that you already own. Assess whether the return on investment will likely exceed the acquisition\u2019s immediate costs and ongoing risks.<\/p>\n Doing your homework<\/strong><\/p>\n Successful turnaround acquisitions start by understanding the target company\u2019s core business \u2014 specifically, its profit drivers and roadblocks.<\/p>\n If you rush into the acquisition, or let emotions cloud your judgment, you could misread the company\u2019s financial statements, misjudge its financial condition and, ultimately, devise an ineffective course of rehabilitative action. This is why so many successful turnarounds are conducted by buyers in the same industry as the sellers or by investors, such as private equity funds, that specialize in a particular sector.<\/p>\n During the due diligence phase, pinpoint the source(s) of your target\u2019s distress. Common examples include:<\/p>\n Then determine what, if any, corrective measures can be taken. Don\u2019t be surprised to find hidden liabilities \u2014 such as pending legal actions or deferred tax liabilities \u2014 beyond those you already know about.<\/p>\n You also might find potential sources of value, such as tax breaks or proprietary technologies. Benchmarking the company\u2019s performance against that of its industry peers can help reveal where the potential for profit lies.<\/p>\n Identifying cash flows<\/strong><\/p>\n Another critical step in due diligence is identifying cash flows, both in and out. Determine what products or services drive revenue and which costs hinder profitability. Does it make sense to divest the business of unprofitable products, services, subsidiaries, divisions or real estate?<\/p>\n Implementing a long-term cash-management plan and developing a forecast based on receipts and disbursements is also critical. Revenue-generating and cost-cutting measures \u2014 such as eliminating excessive overtime pay, lowering utility bills, and collecting unbilled or overdue accounts receivable \u2014 can often be achieved following a thorough evaluation of accounting controls and procedures.<\/p>\n Reliable due diligence hinges on whether the target company\u2019s accounting and financial reporting systems can produce the appropriate data. If these systems don\u2019t accurately capture transactions, and fully list assets and liabilities, you\u2019ll likely encounter some unpleasant surprises and struggle to turn around the business.<\/p>\n Structuring the deal<\/strong><\/p>\n Parties to a business acquisition generally structure the deal as a sale of either assets or stock. Buyers generally prefer asset deals, which allow them to select the most desirable items from the target company\u2019s balance sheet. In addition, the buyer receives a step-up in basis on the acquired assets, which lowers future tax obligations. And the buyer gets to negotiate new contracts, licenses, titles and permits.<\/p>\n On the other hand, sellers typically prefer to sell stock, not assets. Selling stock simplifies the deal, and tax obligations are usually lower for the seller. However, stock sales may be riskier for buyers because the business continues to operate uninterrupted, and the buyer takes on all debts and legal obligations. The buyer also inherits the seller\u2019s existing depreciation schedules and tax basis in the company\u2019s assets.<\/p>\n Developing a plan<\/strong><\/p>\n Current market conditions will likely continue to generate turnaround acquisition opportunities in many industries. We can help you conduct data-driven due diligence and develop a strategic M&A plan that minimizes potential risks and maximizes long-term value.<\/p>\n \u00a9 2022<\/em><\/p>\n <\/body> Economic changes wrought by the COVID-19 pandemic, along with other factors, drove historic global mergers and acquisitions (M&A) activity in 2021. Experts expect 2022 to be another busy year for dealmaking. In many cases, M&A opportunities arise when a business adversely affected by economic circumstances decides that getting acquired by another company is the optimal […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,14,10],"tags":[8,11,12],"class_list":["post-15869","post","type-post","status-publish","format-standard","hentry","category-articles","category-business","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15869","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15869"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15869\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15869"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15869"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15869"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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