Acquisition of the Trade & Assets of a Loss Making Business

A business (Company A) was approached by one of the top four banks to explore the possibility of becoming involved with a business (Company B) in which they had provided a significant term loan and overdraft secured against the company’s assets. They were concerned that whilst the value of the net assets was greater than the combined loan and overdraft of the business, it was making trading losses in the order of £500k per annum and if this situation continued and the bank were forced to call in the debts, the assets would be difficult to liquidate at sensible values as a fire sale situation would arise.

On approaching the shareholders of Company B, they were initially hostile to the proposal but nonetheless agreed to meet as it was the bank that had suggested it may be of mutual benefit. On meeting, a good line of communication was established, at which point it was agreed to carry out an initial review which would be of benefit to them as well as the bank. The key items that came out of that review were: -

The information was shared with both the bank and the shareholders of Company A and B and a business plan was put together that would provide an acceptable compromise for all. This resulted in the following turnaround proposal: -

  1. Share capital
  2. Director’s loans
  3. Bank term loan
  4. Bank confidential invoice discounting facility
  5. Sale & lease back of assets
  6. Potential to extend debt funding in the event of Company A identifying acquisitions  

The proposal met with the approval of all parties and the deal completed for the following key reasons: -

Company B shareholders benefited by

Bank benefited by

Company A shareholders benefited by