Turning a Competitor’s Failure into 50% Revenue Growth: A Distressed Deal Case Study
Turning a Competitor’s Failure into 50% Revenue Growth: A Distressed Deal Case Study
Distressed Acquisition We Advised On
We don’t usually do these but thought I’d share the case study.
We don’t normally touch them because they are messy, time compressed, legally constrained, light on diligence, heavy on execution risk, and emotionally draining for everyone involved. Most buyers underestimate the cash required, overestimate how quickly synergies arrive, and forget that in an insolvency process you are buying problems, not just assets.
That said, we recently advised on a distressed situation where the strategic logic was unusually compelling — and where the downside was well understood and actively managed.
This article outlines why the deal made sense, and then walks through a live deal analysis, covering the real world considerations buyers need to think about when acquiring a business out of administration.
The strategic backdrop
A year ago, we helped a JV partner acquire a profitable construction business:
• £11m turnover
• £1.1m EBITDA
• Well-run, scalable, and operationally disciplined
Recently, a direct competitor — operating in the same region, with overlapping customers, assets, and workforce — moved toward administration.
From the outside, the distressed business looked unattractive:
• Loss making
• Overstaffed head office
• Factored receivables
• Asset heavy
• Operationally fragmented across multiple sites
But from the perspective of an experienced operator already in the sector, it represented something else:
An opportunity to add almost 50% to turnover, improve margins through scale and consolidation, and acquire hard assets at a fraction of replacement value.
This wasn’t a financial engineering play.
It was a strategic bolt on rescue, driven by operational synergies.
The core investment thesis
The buyer’s logic was straightforward:
• Revenue upside
• Retain core customers
• Cross sell into an existing client base
• Renew live contracts
• Margin improvement
• Centralise overhead
• Remove duplicate head office costs
• Improve purchasing power and utilisation
• Asset value
• Acquire £2m NBV of equipment at a steep discount
• Defensive strategy
• Prevent competitors acquiring the assets
• Protect pricing power in the local market
But in distressed deals, logic is irrelevant unless it survives cashflow reality.
So the analysis started with one question:
What does this business need to survive the first 90 days?
Entry price and deal structure (the first reality check)
There is a common myth that distressed businesses can be bought for £1.
In practice:
• Administrators need cash
• They must cover their own fees
• And they must demonstrate a better outcome for creditors
In this case:
• A £50k upfront payment was unavoidable (funded from existing business)
• Anything lower was a non starter
Deferred consideration:
• Maximum 12 months
• No point pushing beyond that — administrators simply won’t accept it in my experience
On top of the purchase price, the buyer needed:
• £100k of working capital
• To fund payroll, yards, and transition costs in the first few months
Distressed acquisitions fail not on price — but on underestimating this bridge funding.
Cashflow: the real battleground
The biggest challenge was cashflow control, not profitability.
Key facts:
• Debtors: £450k
• Invoice financier: £259k
• HP on vehicles/assets: £252k
• Average monthly sales: £425k
• Realistic post deal run rate: £312k pm / £3.75m pa factoring in some loss of customers 10%
Because receivables were factored:
• The funder controlled cash
• Continuity of invoice finance was critical
The solution:
• Put new invoice finance in place immediately
• Accept that a personal guarantee may be required
• Focus on speed, not perfect terms
Without invoice finance, the deal simply doesn’t work unless more cash to fund working capital is available.
The P&L reality (before fixes)
On a trailing basis:
• reduced Revenue (annualised): £3.75m
• Gross margin: 29.1% £1.1m
• Operating costs: £1.4m
• Result: £300k loss
On the face of it, an unattractive business.
But distressed deals are about what you remove, not what you inherit.
Cost removal and rapid stabilisation
We identified immediate, realistic savings:
• Business consultancy: £90k pa
• Non recurring finance cost: £46k pa
• Head office wage reduction: £375k pa
Total identifiable savings:
£511k per annum
Post restructure economics:
• Revenue: £3.75m
• Gross profit: £1.1m
• Operating costs (net): £900k
• Profit before tax: £210k
That’s before:
• Margin improvement
• Site consolidation
• Synergy benefits
Staff, TUPE, and reality
This is where many deals die.
Because this was an asset purchase, TUPE applied.
In theory:
• You cannot cherry pick staff
• You must consult properly
• You inherit risk if you cut corners
In practice:
• Administrators dislike selective transfers
• They want clean exits
• They don’t want tribunals
Two options existed:
Option 1: Selective transfer (cleaner economically, harder legally)
• Take key operational staff
• Leave redundancies to the administrator
• Requires a fair, defensible selection process
Option 2: Acquire all staff, then restructure
• Higher short term cash cost
• Lower legal risk
• Redundancies handled post completion
The second option was more likely to be accepted, despite costing more in the short term. Redundancy cost was £60k.
This is typical in distressed situations:
You often pay more in cash to reduce legal risk and speed execution.
Why the deal worked for creditors
Administrators care about three things:
1. Best outcome for creditors
2. Staff
3. Practical execution
We modelled the alternative: winding the business up.
Estimated liquidation outcome:
• Equipment fire sale: £750k
• Debtors: £464k (no cash or inventory)
• Less secured creditors: £259k
• Less fees and closure costs
• Net recovery: £305k
Our proposed deal:
• £50k upfront
• £200k deferred
• 15% fee to collect debtors
• Total value to estate: £395k
More money.
Less hassle.
Faster resolution.
That is how distressed deals get done.
Key risks (and how they were framed)
• Cashflow risk - invoice finance first
• Customer churn - continuity of service + credibility as a larger operator
• Limited diligence - accept “buy as seen”
• No warranties - price and structure compensate
• Keyman risk - retain operational staff
• Competition from former owners - asset intensity raises barriers
• Execution strain - this consumes management time
Distressed acquisitions are not passive investments.
They are operational campaigns.
Negotiation approach (or lack of one)
One counter intuitive rule:
You do not negotiate distressed deals in the usual sense.
You present:
• A clear offer
• A clear rationale
• A clear comparison to liquidation
Then you wait.
Administrators will ask for:
• More upfront
• Less deferred
• Fewer conditions
The response is simple:
No — and here’s why this still beats the alternative.
Power in distressed deals comes from clarity, speed, and credibility, not aggression.
Final reflections
This deal worked on paper because:
• The buyer was already a scaled operator
• Synergies were real, not theoretical
• Cashflow risk was understood upfront
• The downside was survivable
It would be a terrible deal for:
• A first time buyer
• A financial investor without operational depth
• Anyone under capitalised
Distressed acquisitions don’t reward optimism.
They reward ruthlessness, realism, and speed.
If you get those three right, the upside can be substantial.
If you would like a simple distressed deal checklist you can use to assess a deal drop the word checklist in the comments below.
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Turning a Competitor’s Failure into 50% Revenue Growth: A Distressed Deal Case Study
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