How to apply Sun Tzu strategies to business acquisition.
Just as we look at products or services in unique ways, so too do we consider starting or buying a company in unique and sometimes unbelievable ways. When considering purchasing a company remember Sun Tzu's quote: "....avail yourself also of any helpful circumstances over and beyond the ordinary rules."
We have had a terrible economy that has wreaked havoc on small business. Many are still operating but are at or near complete failure. How do you put this information to good use? Well if you're looking at going out on your own here is one method.
- Talk to CPA's, bank special asset groups and others that are aware of companies in financial distress. Ethically, they cannot tell you the companies to look at, but they can advise their clients that they are aware of people who may be worth talking to.
- Within the limits of your focus (industry or company) watch what is going on in the marketplace. Finding a distressed company is not difficult these days, you may be working for one.
- Assume you find a company whose banking/lending relationship is stressed. Frequently the bank has moved the relationship to special assets.
- Meet with the owner and if there is mutual interest complete your due diligence. Note: Be very careful here and make sure you do a thorough job; I highly recommend working with an A.V.A. (Accredited Valuation Analyst).
- Consider an asset purchase. This means that you are not acquiring the company's liabilities except those noted in the purchase agreement; this also means that accounts payable are the responsibility of the previous owner. Have a good lawyer help you with this document.
- Recognize if the company's loans are in special assets you will actually need to negotiate the purchase from the bank. That's good news. Banks don't want to be in business other than banking. If they have to liquidate then they will take a bath...pun intended. You may be their salvation.
- Banks will likely have completed a provision for loan loss. Meaning they have already written down the value of the loan; in some cases to $0. This creates an opportunity for leverage in negotiating. All you have to do is ask, "Have you already included this loan in your provision for loan loss?" If they have reduced the loan value to $0, then any gain is recovery to the bank. You can frequently make a purchase that includes the company's name, trademarks, copyrights, marketing information, customer base and more for pennies on the dollar.
- If the company still has a solid reputation among its customers then you can continue using the company name, renegotiate with vendors who will probably be relieved that you are there and have a ready-made customer base!
I have actually used this technique before with very good results. From start to finish the process can vary from as little as two months up to six. Most of the companies in distress won't last longer than that.