A couple if key global points to recognize and appreciate when considering acquiring business assets or real estate from a distressed or insolvent buyer. First the value of a going concern is typically much greater than if the business is sold piece meal to satisfy debts of various creditors.
Before laying out a strategy to deal with the various stakeholders, whether it’s the distressed seller, the lender or other creditors, a potential buyer should do a little homework, recognize and appreciate the various positions of the stakeholders and develop an understanding and an appreciation of the goals and expectations of each stakeholder. For example, if a property has a history of contamination, even though its not an active site, lenders will generally want to avoid stepping into the chain of title, per a foreclosure action, and will be anxious to dispose of the property. Understanding the condition of the property can assist and guide the potential buyer of the troubled asset, on numerous levels. For example, attributes or problems with title, or legal descriptions or issues with the area in which the business is located.
Many factors need to be explored to better understand pressure points and improve one’s bargaining position. For example, if the potential buyer learns of a competitive business being built nearby the existing business, this could help in negotiations. Appreciating the fact that lenders are in the business of lending and not in the business of being stuck with a business or the assets of a business and are ill- equipped to effectively manage a going concern. A lender of a distressed assets generally wants to mitigate its damages and maximize its recovery. Often times, a lender will be required to write off or write down the assets if it appears the chances of collecting are grim. Understanding these factors and how they impact the various stakeholders will be very helpful in analyzing the situation.
If a business asset is troubled, the lender will not necessarily be interested in removing the operators of the business. Removal of the operator will only harm the business so a balance exists between preserving the assets and not harming the business as a going concern, while maximizing the benefit to the owner.