Buying a distressed business or its assets at auction offers an interesting new avenue for entrepreneurs and business leaders to explore. Where just hours before administrators held all the cards, once the business or its assets are in the hands of the auctioneer, the power swings quite suddenly to the buyer.
Negotiations are dramatically simplified and those looking to buy a distressed business regularly report that buying at auction is a much smoother way to go.
Buy a distressed business at auction
When a distressed business for sale comes up at auction, buyers know they could be in for a good deal. Beyond putting a reserve on the lot, the seller has forfeited their opportunity to object or haggle; no more endless negotiations, this is it now, a clear route to a sale.
Some buyers find this a more comfortable position to be in – providing they can stick to their maximum bid price and avoid temptation! The risk, of course, is that another buyer will be equally keen to get their hands on the distressed company for sale and suddenly it’s not the seller you’re up against but another potential buyer.
Stick to your guns
The trick – as with all distressed business acquisitions – is to stick to your guns and, yes, you guessed it, do your due diligence.
Businesses regularly sell at auction for under market value. The transparency of the situation changes the whole dynamic to a surprising degree and buyers are often able to make a clearer decision on quite simply whether or not the company is worth it.
But buyers need to know whether or not the business is “worth it” before they enter the auction room. It’s not always an easy thing to quantify, but it will be infinitely easier to quantify before you get into the auction room rather than in the heat of the moment as bids escalate quickly!
Monitoring distressed opportunities
One option to filter out those businesses that reach auction that have the “worth it” factor is to track them from the first signs of distress, through to the point at which they fall into administration and appear on an auctioneer’s listings.
In a lot of cases, the time period between the early signs of distress such as a winding-up petition and the administrators being appointed and assets appearing at auction will be pretty short. Even if the entire business ends up for sale at auction, buyers with an awareness of the market will have a distinct advantage over the competition if they can get an inside track when it comes to identifying opportunities
Needle in the haystack
It goes without saying that the auction house is not going to be suitable for every business buyer and the selection of businesses that make it to auction before being sold is undeniably small. But for those prepared to keep an eye out there is a bargain to be had, especially for those interested in both complete businesses and assets of distressed businesses.
If you want to find distressed businesses for sale and their assets at auctions, liquidations listings are a great asset. Liquidators will regularly list the items they’re selling on behalf of their clients with auction houses, so once you spot a business in liquidation with assets that you’re interested in it’s time to start monitoring for upcoming auctions.
As a buyer, you need to show the same level of care and diligence in identifying targets and completing valuations with businesses going under the hammer as you would to a distressed acquisition through an administrator or handled directly.
Stay committed to this and there is a good chance that you will be able to secure a distressed purchase that will strengthen your business for a knockdown price.