Everything you need to know about taking over a company
Taking over a solvent company is not the same project as the takeover of a company in difficulty. In addition to the intrinsic differences and difficulties, the procedure is different, and the buyer does not benefit from the same guarantees that apply to traditional takeovers. The buyer will therefore need to call upon expert advice well in advance of the transaction, to accurately determine the balance of opportunities and risks, and to assist with the legal formalities of the offer. We will focus here on the takeover of a company in difficulty under the specific legal regime of insolvency procedures.
What is the takeover of a company in difficulty?
This type of buyout can only be carried out when the company has been declared insolvent. The acquisition procedure under the insolvency regime is fundamentally different from that of an acquisition of a solvent company by mutual agreement. In the case of a classic takeover, the offer is addressed to the seller. Whereas for the takeover of a company in difficulty, the offer is made to the Commercial Court through an intermediary: the judicial administrator.
What are the advantages and disadvantages of taking over a company in difficulty?
The difficulties of a takeover through the Commercial Court
The difficulties can be various, and beyond the financial stakes, the buyer will need a good understanding of the target business sector to identify the opportunities of turning the company around. Furthermore, while other types of buyout transactions include financial guarantees, in this case there is no legal recourse against the seller.
Little financial assistance is available to the buyer for this kind of project – banks may be reluctant to grant new credit lines.
Takeovers at the commercial court are standard and extremely rapid procedures that require the support of a professional adviser. All conditions precedent, including finance, must be lifted by the day of the hearing. Understanding the needs of the company and the requirements to mobilise capital must be completed very quickly. In addition to the price offered for the takeover financing working capital requirements must also be considered.
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The advantages of a takeover at the Commercial Court
The price of discounted stocks can often be attractive. It is a fast procedure which, except in special cases, allows for the liabilities of the company to be discarded. It is up to the buyer to determine the scope of the takeover and to select the assets, contracts and employees to take over. The judge will select the offer which presents the best performance guarantees, the preservation of employment and the payment of creditors.
The difficulties of taking over a company via a judicial procedure can be determined, the advantages are not so well known. Nevertheless, they are real, and start with determining the scope of the takeover.
Another advantage: The limited number of candidates. The market for companies in difficulty is said to be a buyer’s market. In most cases a takeover has no competitors, which explains the relatively low prices. Finally, contrary to the preconceived idea that legal proceedings take a long time, the takeover of a company in difficulty is a relatively quick procedure.
When can a company in difficulty be taken over, and what are the steps involved?
When the takeover procedure does not result in a business continuity plan the administrator coordinates the search for a buyer to sell the company. This procedure follows the following steps:
- publication of a takeover bid by the judicial administrator,
- submission of an offer by the candidate purchaser, which must respect the formal legal requirements,
- presentation of the offers to the Commercial Court by the judicial administrator,
- designation of a candidate purchaser by the Commercial Court,if one is selected
The offer must specify the scope of the takeover, the financing arrangements, the price and payment terms, the date of sale, the status of employees, any guarantees, their duration, any disposal of assets, the commitments made and the arrangements for financing the guarantees.
What are the key factors for a successful takeover at the Commercial Court?
One of its key characteristics is that the candidate can determine the entire scope of the takeover. However, the project will have a better chance of success if the buyer meets the expectations of the Commercial Court. The court will choose the offer that best allows the company to continue operating, maintain its employees and pay off its liabilities. In other words, the bidder is selected based on the strength of its performance guarantees.
The candidate with the best chance of winning is therefore the one who:
- knows the target industry
- is committed to preserving as many jobs as possible
- which offers a price that allows the company to pay off more liabilities than its competitors
- and which, according to the same study, received a favourable opinion from employee representatives and the receiver.
Finally, the candidate must be reactive because the procedure is short.
What are the pitfalls to avoid?
Given the significant risks inherent in this type of operation candidates should engage experienced advisors (chartered accountants, lawyers…), whose experience and knowledge can help in making the right strategic decisions.
As the economic development agency of the Hauts-de-France region, Nord France Invest supports your acquisition project in Hauts-de-France by putting you in touch, free of charge and in complete confidentiality, with experts in the acquisition of companies in difficulty.
It may be difficult to evaluate the target company as there are few comparable situations. It is therefore vital to be vigilant on the valuation of the company and the perimeter on which the offer will be made. To do this, the analysis must include all the documents available, such as the latest balance sheets, current contracts, inventories, the nature of the products or services sold, the competitive environment, the list of employees and their levels of compensation.
To complete the picture an in-depth study of the reasons for the deterioration of the company’s situation can indicate which activities should be retained or eliminated in the takeover bid.
The main skills required of the buyer
It is necessary to know the business activity of the target company. For a takeover through a commercial court, the candidate buyer must be able to analyse the causes of the company’s difficulties. This will allow the buyer to take a position and propose an alternative. The buyer must also know how to re-energise the teams which may often have been tested to the limit by the difficulties encountered by their company.
In summary, the takeover of a company in difficulty can be a viable project in the long term, provided that the potential of the company, or of certain of its activities, is properly evaluated. Preparation and consulting on external growth are therefore key to converting an existing negative situation into a future success.
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