Distressed investors realize value depending on a variety of factors, including transaction price, assessment of operations and achievability of the business plan, management execution, capital markets and exit opportunities. Furthermore, strategic buyers must also take into consideration challenges that include achievability of synergies and growth expectations and cultural implications.
Distressed companies represent complex acquisition targets that have suffered any number of damaging events in their history, whether financial, operational, or managerial.
A particular skill set and experience is required to assess distressed companies and to best position a buyer to unlock value. Restructuring advisors familiar with troubled situations can bring perspective and diligence assistance versus more traditional diligence efforts for non distressed targets, since a diverse range of investment opportunities has to be considered on potential targets, in order to quickly evaluate opportunities and determine if the target meets their investment criteria.
In the distressed acquisition context, a restructuring advisor’s activity usually involves conducting:
• a detailed analyses of the target’s operations while identifying areas of risk and opportunity, examining the existing or potential impact of these issues on the target’s business operations;
• A financial review of the target to diagnose the true state of its financial health to ensure that its financial position reflects its current situation.
In addition, advisors must conduct a number of in-person, on-site meetings with the target’s management team, considering personality and cultural differences that may exist; in such a way, a comprehensive understanding of the business and its financial outlook, including the potential cost savings and/or synergies achievable if the acquisition is successful may be obtained.