To put an end to the prevalence of pre-packs and phoenixes, potential buyers need to do a lot of research before bidding for a company to make sure the business is sustainable, says William Mitting.

　　When Datateam acquired Borcombe SP out of administration in October it thought it was on to a winner. The company planned to put the troubles the business had experienced behind it and set about crafting a new future. Six weeks later, the company was liquidated. The reason? "We thought we owned parts of the business we didn't and without those parts, the business was unviable."

　　This error, admitted by Datateam finance director Douglas Wright, sounds like an impossible oversight. However, buying a business out of administration is fraught with risk. Timescales are slim, information is not always available and suppliers, staff and clients all need to be on board.

　　If the industry is to stem the tide of phoenixes, a viable alternative has to be presented to the administrator. This risk of failure that so easily forces the hand of the administrators has to be mitigated. Potential phoenix management teams will be better prepared in their bids having inside knowledge of the business or the time to conduct a thorough due diligence process. A rival bid therefore has to gather information as quickly as possible.

　　Nick Dixon, chief executive of the Lateral Group has first-hand experience of the trials and tribulations of acquiring a company out of administration. In August 1992 he bought Colourgraphic out of administration and John Howitt & Sons in February 2004. Both times he was bidding against offers from the management teams of the failed business.

 　　Your bid has to have credibility, says Dixon. It is essential that you can demonstrate to the administrators that you can act in the best interests of the creditors and have sufficient working capital to run the business.

　　Acquiring a business out of administration is clearly fraught with risk. Dixon says that one of the first things to do is clearly identify why the company went into administration and how you will be able to avoid the same problems.

　　There is little time to make decisions as things move very quickly, he says. You have to have a lot of faith in the employees, the brand and the client base as well as having  a clear idea about what you are going to do with the business. 

　　Ticking clock

　　From the moment the administrators are appointed, the clock is ticking. Clients, notoriously fickle in the sector, will pull the plug at any time and comprehensive due diligence is all but impossible in the timeframe.

　　David James, a partner at City law firm Moorhead James, says that pulling all the relevant information together in such a tight timescale is among the biggest challenge a buyer will face. There is no point writing warranties [or required guarantees] into your bid in an administration so buyers will have to dig around to get their hands on information. However this may not be easy if the situation is chaotic, he explains.

　　Paul Holohan, chief executive of Richmond Capital Partners, believes that it is difficult to uncover any skeletons in the short timescale that most acquirers will face.

　　Businesses that are in administration do not get better with age so you have to act quickly, says Holohan. There is a risk that key staff will leave. Most businesses revolve around a small number of people and you have to retain their services.

　　Asking around the company’s supplier base is often a good way to ascertain who pulls the strings at the company, advises Holohan. And along with retaining key staff it’s essential to keep existing clients on board. Without certain clients a business would not be worth buying, Holohan adds. As a result it is necessary to contact clients to ensure that they are comfortable with the proposals.

　　However, as with any deal, a winning bid is the only measure of success and ultimately it is the administrator that has to be impressed. Peter Kubick, an administrator with UHY Hacker Young says that buying a business out of administration is always a punt and it is essential that there is enough working capital in place to run the business. There is no point struggling from the outset, look at overhead costs and your likely exposure and make sure you have the funds in place to cover them.

　　The administrators’ responsibility is to creditors. They will evaluate each bid on the basis of what represents best value. The administrator will be able to provide a guide price at which they are considering bids. The value of the kit is crucial and should take into account hire purchase (HP) agreements.

　　With HP agreements, it is a case of who needs whom more, says James. You should always be in touch with the HP providers before a deal is signed. As with HP agreements, landlords will need to be onside. Any rights granted to the property are subject to the landlord’s consent and they may require guarantees from the buyer, especially if the company is a new trading company with no credit history.

　　Ascertaining what liabilities the acquisition vehicle will assume is key to a successful enterprise. Lenders may have onerous financial agreements in place which will either have to be taken on or renegotiated. Failure to properly consult with the relevant parties could result in the presses being taken off the shop floor on day one.

　　As such Holohan says that a bid should offer a sizeable discount to the net asset value (NAV) of a business. He adds: Consider when looking at the debtors that the chances of collecting all the outstanding money is unlikely, especially with older debts. This will affect the value of the bid.

　　Open dialogue

　　An acquiring business will not always be expected to pay up front for the total value of its bid. Staged payments will ease the pressure on cash flow in the early days of operations. Sometimes, an administrator may accept clauses that trigger repayments when a certain level of turnover is reached. However, if there is a rival bid this is unlikely, says Kubik.

　　In certain circumstances, we accept deals with an element of turnover- or profit-related payment but the timescale is tight, six months at the most. Agreements for deferred payments are not always kept and so we look for some form of guarantee, whether personal or a corporate guarantee from the parent company, for these payments.

　　Throughout the process, keeping an open dialogue with the administrator is crucial.  Keep the administrator abreast of your bids as administrators don’t like silence, says James. If there are several potential buyers, the deal process is effectively an auction. Administrators will then weigh up each bid and you may be required to alter your bid depending on what others have offered. A final offer deadline does not necessarily mean the end of negotiations.

　　Winning the deal is only the start of the story and any buyer will inherit a host of liabilities. TUPE agreements with staff will almost always be applicable and there are a number of other areas such as data protection notifications where a failure to act in advance of the deal could see the business unable to operate on day one.

　　Openness is the key to success when buying a business out of administration. It is a fraught and emotional process and one which will involve talking to suppliers, clients ,staff and the administrators in a tight time scale.

　　Kubik says that the key thing is to do your homework. You have to ask yourself is this the business you really want and how will it work. There is no point investing all that time and effort buying a business if it is not going to work.

 

[时间：2009-02-13  作者：William Mitting  来源：互联网|#]