My top 10 tips to buying a company out of administration – snapping up opportunities by Andrew Bradley, Head of Corporate Finance at Shulmans

• Look out for opportunities to buy businesses in distress.  These could be competitors, suppliers or businesses that add value to your existing client base.  In recent weeks there have been administrations such as SRM Holdings, LSUK, Rosebys and Speed Frame PVCu Windows. Philip Green is supposedly looking at taking over the UK high street with a bid for the discounted debt of fallen Icelandic giant Baugur, which owns names such as Karen Millen, House of Fraser and Hamley’s. 

• If a deal comes your way, you will have to be very focused on making the deal work rather than completing a normal deal process with all the due diligence and legal processes.

• Time will be of the essence.  If you buy a company from administration, the information in sales particulars will not be guaranteed, so a physical inspection of the assets is recommended.   

• Obtain as much relevant information as possible by quizzing the Administrator, before submitting your bid.  It is important, if possible, to establish what issues affect the business, the quality of the stock, the extent of retentions of title and the status of any major contracts. 

• Ensure that appropriate releases are obtained from any existing funders who have debentures or legal charges.  Check that the Administrator has been properly appointed and has the authority to sell the assets. 

• One of the riskiest areas is taking over the workforce.  Analyse this properly so you can assess those risks.  In certain circumstances, the liabilities attaching to the employees will be so substantial that they outweigh the commercial advantages of going ahead with the purchase. 

• If the business wants or needs to carry on trading in the existing premises, you need to check the existing property arrangements.  You may need to negotiate separately with a third party landlord to ensure continuity. 

• To buy a company out of administration, you have to act quickly and accept you will have to take a commercial view on some parts of the deal. 

• Don’t stand on ceremony with the legal contract.  You have to remember that you are buying the business from the Administrator – not the previous business owners.  There are certain key things which your lawyer will need to check but the Administrator will not be prepared to accept personal liability for anything and will not guarantee legal title to the assets.  There will, therefore, be gaps in the contract. 

• You won’t have the opportunity to carry out full financial, commercial or legal due diligence.  As time is so critical, you will need to take a view on many of these assets.  The risks associated with this should be reflected in the price you offer.  Don’t expect to be able to make any claims after the event.  In a normal transaction, warranties and indemnities and completion accounts are used effectively to adjust the price if there is a post-completion problem.  This will not be available in any insolvent situation.

For more information or held and advice contact Andrew Bradley on on 0113 2977737 or at abradley @shulmans.co.uk

News date 26th February 2009