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So you bought a BAD company? Whether it was through a
straightforward acquisition, MBO or MBI sometimes the best due diligence can
fail.
Here are Company Rescues's Top 10 Tips to resolve the mess!
This brief article shows you how to go about fixing the problem. MBO’s,
MBI’s and BIMBO’s share common features, there will have been in a period of
extensive due diligence. The previous management will have had one eye on
that and one eye on running the company. Often the new management or owners
come with different views, expectations and approaches, so the problem is
there. It is what it is!
But let’s assume here, that the causes are myriad but the company is NOT as
you expected and could be on the brink of real trouble. What to do? Throw it
all away or fight to restructure it? Follow our tips…
Tip 1: Don’t expect to fix it by suing against vendor’s warranties and
guarantees!
Tip 2: Don’t expect to fix it by suing against the due diligence advisors or
lawyers!
Tip 3: Assume that any such recovery action will be legally driven,
therefore costly, protracted, and very difficult and may or may not bring
any recompense! In fact assume no reward will follow but only cost. That way
you will not be surprised unless you win an award.
Tip 4: Set out a simple plan to turnaround the mess and gain what you can
from the business. What are the business objectives? What is the plan for
recovery? We recommend writing a sheet of paper for the initial 1-3 month
period, a sheet for the 4-12 month period and then a simple paragraph or two
on 1- 3 years. That ought to be enough for now.
Tip 5: Don’t be frightened about using turnaround practitioners to help
review the position. KSA will review and report on any “problem child”
investment or acquisition in detail and free of charge: just call us on 0800
9700539 or browse our site to learn more about your options.
Tip 6: Don’t suffer bad management, if the managers are not delivering
change them.
Tip 6: Consider using a company voluntary arrangement (CVA) to
Kill off contracts that are onerous, leases, HP, management employment
contracts etc
Get rid of management
Get control of the cashflow
Leverage unsecured creditors monies – great for cashflow
Restructure secured liabilities such as bank, receivables and asset finance
issues.
Negate or mitigate (unsecured) deferred considerations
And avoid terminal insolvency with most of the benefits!
Tip 7: Build a daily cashflow and use it EVERY DAY. Contact us if you want a
free very simple daily cashflow model.
Tip 8: Be honest with people (including yourselves), there is no point in
blaming all other parties: after all you bought the company now you have to
recover the best you can.
Tip 8: if the company is actually or contingently insolvent the directors’
fiduciary duty (their basic duty of care) shifts to the body of creditors
and AWAY from the shareholders’ interests. So it is a legal requirement to
act for the best interests of the creditors. For a fuller understanding of
this, contact KSA on 0800 9700539.
Tip 9: Don’t panic, there is always more time than you think to plan
carefully, but its best to get good independent advice as part of this
process.
Tip 10: Carefully monitor progress (in either direction) and MINUTE every
important decision or discussion. It’s amazing how much detail can be
forgotten in the rush to get things sorted. In a year or two this minuting
may help you defend any actions you and the board took.
So that should give you some outlines – common sense applies really! We
strongly recommend removing all emotion from the board’s decisions and get
on with sorting it – we can help if requested. Clearly this simple article
can deal with the obvious complexities of a failed acquisition – talk to us
about your issues.
KSA is a specialist turnaround practitioner firm with UK coverage from 3
offices. We work with VC’s, banks, private equity investors, boards and
shareholders to recover value from failing but viable companies.
Please call or email us for further details
© 2006. Keith Steven, KSA (NE) Ltd All rights reserved
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