It’s a Buyers’ Market for Assets and IP

June 8, 2009 at 3:06 pm

Bankruptcy-related mergers and acquisitions have hit their highest level globally since August 2004. [read bankruptcy data]

Indeed, commercial bankruptcies in the US have increased by 78% in the first quarter 2009 from the same period a year earlier, and almost tripled from 2007. [read more bankruptcy data]

However, first signs emerge that filings may have peaked in March, with April’s numbers slightly lower.

That still leaves a growing throng of bankruptcy-related M&A to work its way through the economic system. This population of distressed companies not only includes asset sales after a bankruptcy has been filed, but also distressed sales during crisis and liquidation. And while big name Fortune 500 companies like Chrysler and Circuit City are on the chopping bloc, there are many more smaller technology companies seeking to monetize their assets as well.

A good time to buy

This is a good time to buy up those distressed assets most of which are sold at impressively low valuations. It is astonishing how cheaply equipment can be bought out of bankruptcy. Who wants to buy new if you can get it almost new for pennies on the dollar? This is also true for intangible assets. Standard software as well as specialized software licenses that are transferable can be bought at a significant discount.

This could also be a good time to consolidate industries, join forces, increase economies of scale, and emerge stronger from the current crisis. This would be the time to keep a watch on your industry to pick up patents and other intellectual property from your competitor. So many technologies that started out as stand-alone companies in a stronger economy make more sense now as a piece of a larger entity. “Features” and “add-ons” do not make for sustainable companies.

Cash is king; as always. But most VCs prefer to see their stalled portfolio companies survive as part of something bigger than take the hit of a full write-off immediately. So stock and other paper consideration becomes more palatable in a recession than in better times.

Gunther Hofmann is a Vice President of The Brenner Group and has done extensive work in valuations, M&A, venture capital, and corporate finance with significant international experience in small firms as well as global corporations. Gunther earned a Masters Degree in Electrical Engineering and Business Administration from Darmstadt University of Technology in Germany, and was a Visiting Scholar at UC Berkeley. He is a holder of the Chartered Financial Analyst designation, and a member of the National Association of Certified Valuation Analysts. Gunther is Chairman of the Software/IT Industry Group of the German American Business Association (GABA).

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