M&A Imagineer: The Scrapyard Strategy
Junkyards, salvage-yards, scrapyards and the like are not just full of metal goods and components that all need to be shredded, crushed and baled – sometimes they may house antique and other rare parts that are vital for restoration programmes and projects?
Only a few decades ago scrapyards seemed to be everywhere, kids would routinely go in (trying hard to avoid the Alsatians and Rottweilers) and buy all the components for and then actually build their own bicycles; adults would look for missing components for their motorbikes, cars and trucks – way before any specialist shops and trade counters became commonplace?
With a “phoenix” or “pre-pack” a business on the verge of being (legally) liquidated is effectively closed or wound-down and its assets “acquired” by a new company (established by the existing management/their advisors) that continues trading but without many of the previous company’s liabilities (facilitated by expert Insolvency/Turnaround Practitioners).? The business is given a new lease of life, and, if, lessons are learnt prospers in the future?? There can still be much of a stigma about closing down a business (no matter how large or small); but these things happen – it takes a very strong person/team not to throw in the towel completely, so do not be too hard on yourselves especially if the difficult trading conditions were the result of things that were utterly out of your control – geopolitics, for instance?
The scrapyard strategy differs from a phoenix because it involves selectively acquiring the specific assets of various “distressed” businesses that are methodically being formally wound-up by a seasoned Insolvency Practitioner/Receiver.? These assets are legally acquired via a new company, by a seasoned management team and with capital backing from a pool of angel investors or trade competitors that consider it cheaper to acquire the various business assets rather than to formally take-over a specific target company (that may be offered at a premium price due to a forced bidding-war)?
The acquired assets may comprise: staff; plant and equipment; client banks; customer contracts; intellectual property (including marketing brands); premises and so on…all from different distressed businesses?? Conversely, where you have an existing business – the proposed asset acquisitions may be designed to “fill-in” the gaps in your existing commercial operations?
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If you calculate that the various component parts would be far too costly – in contrast to buying an existing profitable business, then, clearly, you would not proceed?? There has to be decent price arbitration between the two for warranting any further investigation/consideration?
However, if you do actually manage to succeed you may just be able to help safeguard a few jobs and give some hope to the local/regional economy?
Kip
The EBO Guy
…Acquiring businesses for employees