Chris Evans

27th August 2020


How do you spot the "best distressed" M&A opportunities?

As with most major economy shocks, there are winners and there are losers. While many companies were completely caught out by COVID-19, others are in a position to benefit.

There has never been a better time to buy a company for less than its long-term value trend.

Whether it is companies that stretched themselves for growth plans that were abruptly halted, consistently over-borrowed businesses with a short-term inability to cover liabilities, or owners that can’t face the prospect of rebuilding post-virus, the UK economy is awash with M&A opportunities. The key is how do you spot them?

As with all M&A activity, the secret to success is to be in there first and not wait until a company is for sale. By the time a company is put up for sale, any issues are probably severe, and the best targets will attract other interest thus driving up the price. 

So how do you spot the best distressed companies before everyone else becomes aware? Plimsoll has identified five things to look for when prospecting for M&A opportunities:

Look for a simple ownership structure

Independent companies are an acquirer’s dream. These companies often have simple ownership structures, few directors, and no support from a larger parent. This type of company is the easiest to acquire as any financial distress is felt acutely by its stakeholders. In the current climate, selling out to an investor could be a more welcome prospect than nurturing the business back to health.

Identify a big difference between current & future value

In all industries, there are companies that have seen a growing gap between pre-crisis / current value and the long-term potential value of the business. Often small, post-acquisition tweaks to these businesses, such as eliminating dividends or productivity gains from being part of a larger group would see the value of these prospects rise sharply over the next few years.

Understand overall financial strength

Whether it is an over-indebted business that needs a capital injection or companies not achieving the required returns from their investments, there are otherwise good business out there. With economies of scale, re-capitalisation and a fresh direction, many companies currently in financial trouble would make excellent acquisition prospects.

Look at performance over several years and not just the pandemic

Company performance is formed over several years. Companies do not fail or succeed on an isolated year. Companies that have been in decline for five straight years might be a falling knife to avoid. Others that were strong but that invested for growth and aren’t making the returns they expect could be turned around quickly. Maybe you are buying a company purely to acquire assets cheaply, and spotting the companies that have been consistently in trouble is key.

Have a list of alternative options

It pays to have as many options as possible based on the criteria you have agreed internally. Buying a business, particularly an independent, owner-managed one can have its challenges. Valuations can be based on emotion and not reality. Having multiple options is key to strengthening your hand in negotiations and saving you time should you have to abandon a purchase.

If you are looking to acquire a business in the current climate, make sure you are buying one of the best distressed companies Plimsoll has identified. Our analysis, available for over 1600 different markets, is designed to help you to short-cut all five elements. Whatever your industry or sector, we can instantly:

  • Show you the independent companies in any given market
  • Pick out the companies with the biggest difference between current and future value
  • Measure each prospect’s current financial outlook
  • Plot each company’s performance over 5 years
  • Build you a list of companies that meet your criteria
If you’d like to know about distressed acquisition opportunities in your market, visit and search for your industry today