Business owners experiencing financial struggles may have options to relieve some of the pressure, including a sale or reorganization. One method may involve finding another company willing to acquire an enterprise saddled with heavy debt. A business may, however, require a restructuring before a potential buyer finds it attractive.
As described by CFO magazine, debt restructuring may provide a troubled company with a way to attract a buyer and continue operating. A business may then readjust its overall strategy after downsizing equity value and reducing its liabilities.
Some ways a troubled company may attract an acquirer
A private or corporate buyer seeking to acquire a particular type of business may have a need for its customers, suppliers or reputation. A potential buyer seeking an already-existing yet financially distressed company may gravitate toward what looks like a sound acquisition at an attractive price.
Some acquirers may agree to take over a company along with its debts. This may present a chance to negotiate a better purchase price or reprioritize the business’s remaining liabilities. If the current owners find that resolving debts and regaining profitability reflects an uphill battle on their own, they may consider the sale as a viable exit strategy.
Creditor acquires indebted Florida chain
A business chain with nearly 30 locations across Florida filed for bankruptcy and then received court approval to put the company up for auction. As reported by the Orlando Business Journal, its largest creditor acquired it through the auction.
The buyer placed its starting bid at $25.5 million, which the chain owed to the acquirer in outstanding loans. With no other buyer to outbid the offer, the creditor won the auction and agreed to provide the company with capital to continue its operations. The chain emerged free of debt, under new ownership and with an opportunity to move forward and grow.