A downturn may be a good time to go asset shopping… at least for some small and medium enterprises.
Recently one entrepreneur acquired over $100,000 worth of printing machinery from another firm that was looking to exit the business. "It made sense as it increased my capacity by 40% and also cost much less than what we would have spent for brand new machinery.”
"The transaction provided us with an excellent opportunity to strengthen our position ahead of a future upturn."
Welcome then to the rarefied world of distressed asset sales or asset stripping. Businesses — and their owners — looking to make an exit altogether are trying to make full use of their assets — either their machinery or the land they own. And there are many looking to acquire these distressed assets.
They are usually marked by intense negotiations, with creditors of the defunct business taking on the role of the interested spectator. More often than not, it turns out to be a test of who has the most patience.
"Buyers of such assets are confident they can survive until the economy starts looking up and then seek a high return on investment. Also, as weaker units quit the game, the buyers will be in a position to increase their market share."
A more relevant issue has to do with the current land values. "Some of the distressed businesses could have land holdings or offices that can be sold and funds recouped," said a banker. "But in the current real estate marketplace, finding a median value acceptable to all parties is impossible."
According to industry sources, the construction space is one where asset disposal could take place in higher volumes this year. Even wholesale acquisitions of a business could become a more regular feature. Raising additional resources through such transactions would come in handy to those firms looking to participate in projects nationally or internationally. Or so goes the conventional thinking. But acquisitions or partial equity participation can be considered everywhere.
"The impetus will be felt in three areas: where there is a technology play; where there is a clear benefit of market access or customer access; and in niche areas where such a deal can significantly increase competitive strength".
The coming months will see how well such forecasts hold up. But there is no denying that for the right price, the right kind of distressed asset is there for the taking. Those on the lookout to buy or sell just need to know the where and the when.