Bad Company Purchase

27 July 2017

So you bought a BAD company? Whether it was through a straightforward acquisition, MBO or MBI, sometimes the best due diligence can fail.

Here is KSA Group's Top 12 Tips to resolve the mess!

This brief article shows you how to go about fixing the problem. MBOs, MBIs and BIMBOs 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 lets 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 vendors 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 08009700539 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 7: 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 cash flow
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 8 : Build a daily cash flow and use it EVERY DAY. Contact us if you want a free very simple daily cashflow model.

Tip 9: 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 10: 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 11: 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 12: Carefully monitor progress (in either direction) and MINUTE every important decision or discussion. Its 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 boards 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 Group is a specialist turnaround practitioner firm with UK coverage from 5 offices. We work with VCs, banks, private equity investors, boards and shareholders to recover value from failing but viable companies.

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