HERE are some tips for purchasing a business out of insolvency. The tips are from Dentons UK but are mostly relevant in North America as well.
We would add to the list:
1. Ensure you receive unencumbered legal title to the assets you purchase. For this you should get legal advice in the jurisdiction of the acquisition.
2. Understand how to value/price the business assets. The approach is very different than the valuation of a going concern business.
3. Remember the business is insolvent for a reason. Post acquisition, you have a turnaround on your hands with the related financial and management challenges.
Purchasing a business out of insolvency can be extraordinarily profitable and not very risky if structued properly. But it is a unique transaction and, therefore, strategic purchasers are usually not very experienced or comfortable with the process. These tips should help you come out on top.
Posted by Scott Sinclair, Range Advisors
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