How do you find distressed businesses that want to sell?

searcher profile

March 09, 2021

by a searcher in Vancouver, WA, USA

Hey there, I just recently joined this community and thought why not share what I am currently trying to figure out.

In the last month, I have decided to focus on finding distressed companies that have a ton of debt. Since all my previous hunting was more focused on healthy businesses this has been an interesting shift for me. I have been reaching out to accountants, lawyers, etc. but I am curious how this community would approach this.

Anyway, I am curious how you would go about finding businesses that are doing yearly revenue in the $25-100mil range that are weighed down with a significant amount of debt and are looking for solutions.

Cheers.

1
22
316
Replies
22
commentor profile
Reply by an investor
from University of Nebraska in Austin, TX, USA
Three areas come to mind: BKs, lenders (BDCs), and zombie PE funds.

BKs are obvious, but they are competitive public auctions and an intermediary gets hired. Funded sponsors typically have a big lead here, as you'll need to understand the BK process & have very fast funding capability.

Lenders will take over underperforming companies. The easiest place to start would be with publicly traded BDCs, see which company investments are a going concern or have been marked down significantly (or close to $0), and get in contact with the lead on the deal.

You could dig into Zombie PE funds. There are more and more of them every year. A PE fund may own a company longer than expected sometimes to milk additional management fees knowing that they aren't going to reach the carry on the investment or fund. This is probably the most interesting because there are some crazy disincentive/politics going on here, and sometimes reasons for acting are not financial...but also very tough to find.
commentor profile
Reply by an investor
from Hobart and William Smith Colleges in Dorset, VT, USA
Tim, your timing is awful. Banks have never had less distressed borrowers, Federal regulators have Never been more tolerant with. banks, the turnaround industry has never been less busy, ABL shops have never been less busy, interest rates as historic lows, govt bailouts at all time highs and the amount of liquidity chasing distressed deals has never been higher. I buy distressed businesses for a living and experienced all of the above in###-###-#### looks worse according to bank workout departments, bank regulators and bankruptcy attorneys.

My best advice is to find someone who is exhausted and recovering and see if you can ride that wave upwards.
commentor profile
+20 more replies.
Join the discussion