Eight Advisory: Buying & Selling Distressed Businesses

1. © 2019 EIGHT ADVISORY PROPERTY - CONFIDENTIAL
RATIONALE:
 Buying and selling
distressed businesses
requires careful
consideration
of the investment
strategy
 Clear planning will
enable any buyer
to draw the right
conclusions and ensure
divestment success
 It goes without saying that in Q1-
2019 the M&A market is
challenging to navigate.
 An uncertain Brexit, consumer
spending concerns, tariffs and
currency issues have all resulted
in hesitancy amongst both buyers
and sellers.
 Company Boards and Investment
Committees are deferring
decisions and adopting a “steady
as we go” policy.
 However, the fact remains that
amidst this uncertainty investors of
all types are anxious to deploy
capital and Private Equity in
particular are keen to put their
money to work.
 As a result, when assets come to
market there are a wide range of
potential purchasers and here at
Eight Advisory we’re seeing
continued appetite for both
performing as well as
underperforming stressed and
distressed assets.
BY JEAN GUILLOU, TIM WAINWRIGHT, FLORENT BERCKMANS AND TOM DE TROYER
 Our analysis here at Eight advisory
indicates that whilst the number of
mid-market distressed sales in
Europe (see figure below) has been
relatively consistent over the last
few years, the average value of
these deals is increasing.
 This increase is driven by many
factors, but experience tells us there
are now more buyers looking for a
piece of the distressed action.
 As a result, investors seeking to
extract value from such processes
need to ensure they do their
diligence and develop a robust and
viable strategy.
 Conversely, sellers of stressed and
distressed assets need to ensure
they present their business in a way
that adequately supports any
investment strategy.
DISTRESSED ASSET SALES BY QUARTER: WESTERN EUROPE – MID MARKET
BUYING
& SELLING DISTRESSED BUSINESSES
EIGHT ADVISORY:
INTRODUCTION
STRESSED
& DISTRESSED M&A:
NUMBEROFDEALSPERQUARTER
AVERAGEDEALVALUE(£m)
54
69
63
57 59
48
63
66
62 64
46
50
0
10
20
30
40
50
60
70
80
Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4
10.00
20.00
30.00
40.00
50.00
60.00
2016 2017 2018

2. © 2019 EIGHT ADVISORY PROPERTY - CONFIDENTIAL
RATIONALE:
 Buying and selling
distressed businesses
requires careful
consideration
of the investment
strategy
 Clear planning will
enable any buyer
to draw the right
conclusions and ensure
divestment success
BUYING
& SELLING DISTRESSED BUSINESSES
EIGHT ADVISORY:
In our experience, we identify that the success of a stressed / distressed
transaction requires consideration of the following eight factors:
SUCCESSFUL TRANSACTIONS:
 Accurate cash management is even more
important in a stressed or distressed
situation with a robust forecast of run-rate
losses
 Guidance on receivables / payables KPI’s
is required to support analysis
of performance
 A rolling 13 week cashflow forecast will
provide comfort on cash controls and the
short-term cashflow forecast will require
daily review and clear reconciliation
to cash at bank
1. CASH MANAGEMENT:
 A clear plan is required that supports
the turnaround strategy with line-of-site
to sustainable cash generation.
 This plan should articulate the one-off costs,
time required and any risks associated with
the transition.
 Additionally, the plan should identify quick-
wins and any alternatives that may be
available under different ownership
scenarios such as operational cost
reduction, working capital optimization,
refinancing and revenue opportunities.
2. EQUITY STORY
& TURNAROUND PLAN:
 Constructing a robust financial model that
provides clear linkage between the Profit &
Loss account, Balance Sheet and
Cashflow is key to evidence performance.
 Adding sensitivities provides comfort
to any forecasts and downside risks.
3. BUSINESS MODEL:
 The team selling the business needs
to be 100% credible.
 Bringing in new management can introduce
new capabilities and provide objectivity on
any improvement strategy as well as create
a strong commitment of the organization
 A CRO office can help drive the change
programme.
4. MANAGEMENT TEAM:
5. FINANCING:
 Performance issues may negatively impact
working capital.
 Equity and debt may be used to finance
investments, credit insurance may be more
expensive and both customers and suppliers
may have tightened their terms of trade.
 Quick wins, both in terms of operating costs
and liquidity improvement such as asset-backed
financing could help secure the first leg
of turnaround.
 Understanding any opportunity to unwind these
constraints in the forecast will be an important
part of the value story.
 Understanding and respecting the needs
of employees, trade unions and any works
council will be important where their
objective is to preserve jobs and protect
the interests of members.
 A clear negotiation and consultation path
is required to ensure transferring employees
are protected and to build trust as a basis
for future operations.
6. EMPLOYEES:
 In the case of stressed/distressed sales
the structure of the divested business
is important.
 Asset sales may be favoured where buyers
are able to take the business with limited
liabilities, however customer, employee and
other considerations (such as time to
implement) need to be taken into account.
7. STRUCTURING:
8. OFF BALANCE SHEET ASSETS
 Identifying and communicating
the value of off balance sheet items may
add substantially to the overall valuation.
 Historic tax losses, intellectual property
assets and unrealised gains in stock may
be examples of value that will be realizable
in a buyers business plan.
 Such off-balance sheet items can help
mitigate valuation, particularly in the case
of deals that are “price negative”

3. © 2019 EIGHT ADVISORY PROPERTY - CONFIDENTIAL
ABOUT EIGHT
ADVISORY:
BUYING
& SELLING DISTRESSED BUSINESSES
EIGHT ADVISORY:
With over 400 people Eight
Advisory is the leading
independent advisory firm
in Europe exclusively
focused on:
 Transactions,
 Restructuring &
 Transformation
Eight Advisory is a member
of Eight International
ANALYSE AND DELIVER:
 Short term cashflow forecasts
 Working capital analysis
 Independent business review
 Strategic options analysis
 Carveout & divestment support
 Financial restructuring
 Operational restructuring
 Working capital optimisation
 Financing solutions
 Cro office
 Process & management
support
 Assistance during receivership
Experience in the acquisition and divestment of stressed and distressed
businesses across Europe:
EIGHT ADVISORY:
 Here at Eight Advisory we have significant experience of acquisitions and
divestments within stressed and distressed situations.
 Our experienced operational and financial consultants have supported
management teams and investors in many different situations including acquiring or
divesting out of insolvency, and also situations where performance has been
challenging and management remains in control.
 In all situations, we deploy a senior team with deep experience who are adept and
helping to navigate seemingly difficult situations
JEAN GUILLOU
PARIS
01 45 61 75 07
06 37 08 00 79
jean.guillou@8advisory.com
FLORENT BERCKMANS
PARIS
06 11 56 51 58
florent.berckmans@8advisory.com
TIM WAINWRIGHT
LONDON
+44 (0) 7841 497 689
tim.wainwright@8advisory.com
TOM DE TROYER
BRUSSELS
+32 478 840 529
tom.detroyer@8advisory.com