How can I maximise value on underperforming assets?
I am considering selling some parts of my business, but I feel a buyer might easily be able to work down the price and then really cash in. I am determined to maximise the value of any sale and I would really appreciate some advice on the best ways to dispose of an underperforming asset.
Colin Mills writes:
The very best way of increasing the value on disposal of an underperforming asset is to get it performing, anything less than that will usually mean lower value. An alternative approach is to identify a trade buyer or venture capitalist which is committed to a buy-and-build strategy and can see the opportunity for joining your underperforming business together with a company they already own. Typical examples relate to combining sales forces, eliminating duplication of finance and administration functions, or elimination of duplicated distribution facilities or regional depots. If you can justify this scenario to the buyer, you may get more value than a normal exit process would suggest. This will still be tough, but could be made easier if you can introduce some competition in the sale process. In these types of cases I’ve seen exit values increased by between 25% and 75%.
The key here is to figure out who your business might be attractive to. It’s the ability to see the “big picture” and to spend the time working out who is growing, who’s ambitious, who might have lots of money to spend and who are the major players who may benefit most from some consolidation within the industry.
A riskier but ultimately more lucrative strategy could be to start the buy-and-build process yourself. Buy a competitor to create a combined stronger business with your underperforming asset. This will then be of greater attraction to a bigger player, so will realise better disposal value. This approach is not for the faint hearted.
The other alternative is to get your underperforming assets performing – and this might be easier.