Over the past 20 years, Revitalization Partners has served as court-appointed receivers for a number of companies in the Pacific Northwest.
In fact, our experience includes serving as receivers for thirty-four companies in a wide array of industries, ranging from manufacturing, importing, and technology, to cannabis.
While we have worked in many industries, we have had substantial success in selling the assets of a company as a going concern value. This result brings additional value to the receivership estate when compared to an outright liquidation of the assets in an auction.
The important issue that we address in every receivership is determining the fair market value of the company’s assets when selling them as a going concern.
DETERMINING FAIR MARKET VALUE …
Determining the fair market value of assets for a company that is operating as a going concern requires a substantial effort to ensure that we are maximizing the value of assets on behalf of the company’s creditors.
In fact, under the Washington State Receivership Act, the receiver is required to obtain approval from the court after sufficient notice to all interested parties to enable them to comment on the proposed sale of assets.
This process requires that we are able to justify the value of the proposed sale and present our case that it represents the best and highest value for the assets in an arm’s length process.
DETERMINING LIQUIDATION VALUE …
This effort begins with determining the liquidation value of the physical assets.
We typically bring in a firm that has experience in valuing physical assets, and which also has the capability to conduct an auction, should that be required.
This type of firm, in our experience, provides the most realistic valuation of the physical assets, to use as a baseline for establishing the minimum value for a going concern asset sale.
The going concern valuation, in addition to the value of the physical assets, also includes estimates for intangible assets, tradenames, customer lists, websites, and the value of the sustainable revenue in a going concern environment.
SALES & BIDDING PROCEDURES …
A significant element in establishing the best and highest price is to establish sales and bidding procedures that are to be used to attract possible bidders.
The bidding procedures could include minimum acceptable bid price, bidding increments, and overbid procedures, depending on the nature of the business and the number of bidders anticipated.
The bidding procedures also include qualifications for potential bidders and a bidding deadline for any bids to be submitted.
It’s important to communicate to potential bidders that the assets are sold free and clear of all liens, that there are no contingencies allowed, and that the winning bidder must make a cash downpayment and remit the balance in cash at closing.
Selling the assets free and clear of all liens is a substantial benefit to potential buyers, as they are not responsible for any liabilities previously incurred by the company and have unencumbered use of the assets after the sale is consummated.
SOURCING POTENTIAL BIDDERS …
Identifying individuals or companies that might be interested in bidding on the assets is also an important part of the process.
We have found that there are many different sources for potential bidders, including vendors, key members of the management team, competitors, or former or current owners of the business.
We also place ads in trade magazines, typically in the businesses for sale section, that usually generate significant interest as well.
Typically, we receive a number of offers for the assets being sold, and as part of the process, we vet potential buyers to ensure they have the ability to fund the purchase at closing.
They also conduct due diligence during this period as well, as one of the important elements of the sale is that they purchase the assets on a where is, as is condition.
In other words, there is no recourse to the receiver or the company after closing. We also use this process to negotiate an increase in the purchase price, if possible, when there are multiple buyers.
SUBSTANTIALLY BETTER SALES PRICES …
This process has typically resulted in a sales price that is substantially better than the liquidation value that was obtained early in the process.
A great example of this was when we recently sold the assets of a company where in court pleadings, we stated, “Given the facts and circumstances of this case, the purchase price is clearly more than 50% of the fair market value of the tangible and intangible assets being sold”.
The court subsequently approved the sale based on the facts that we submitted to the court.
As a result of this sale, RP was able to pay off 100% of the secured debt and in fact, will be able to return a portion of the proceeds to the members of the LLC.
While the process of maximizing the value of the assets is an art form and a science, it’s important for the receiver to have experience in operating companies to obtain the best value for the benefit of creditors.
That coupled with our experience in marketing and selling assets in an operating company, substantially improves the prospect of success.
Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.
