Distressed assets: business bargain or cash sinkhole?

Distressed assets: business bargain or cash sinkhole?

As often happens in real estate, some people seek to profit by taking on distressed businesses and turning them around. Is this a wise strategy though, or a sure-fire way to lose money?

For Andrew Lupton, co-owner of Nonna’s Gourmet Sausages and Deli, acquiring distressed assets has been a key factor in the success and expansion of his business.

“I've been running businesses for years … it comes [as] second nature to me. I didn't plan it that way, but when opportunities come along, then you assess the merits of what they are and you adjust your business plan to suit that,” explains Andrew.

“All my life, I've had the twin path of organic growth and acquisition. We tend to buy largely underperforming businesses, businesses that perhaps are on their knees … we don't spend much money on them, and then we try and grow them.”

It was this approach that saw Andrew purchase Nonna’s in 2008.

He says the previous owner was a brilliant sausage-maker, but that “the business side didn't agree with him, so he sold out to myself and my sister”.Sale sign reading 70% off marked price

“We bought him out in 2008, but we kept him with a small shareholding and [he kept on] making the sausages for us.”

Since that initial purchase, Nonna’s has acquired several other businesses in a similar fashion, in order to rejuvenate them and add both scale and diversification to the business.

“Brookvale Meats came up a year later and when we needed more space and different products,” says Andrew.

“So we bought Brookvale Meats and that gave us the opportunity to rapidly and quickly expand the range into all sorts of different meat products and gave us proper production space.”

The Sydney-based company has also recently acquired a smallgoods business in Perth, expanding its geographic reach to the west coast.

When considering an acquisition, Andrew says he is very selective in the types of opportunities he will pursue, to make sure that any purchase fits into the broader growth strategy of the business and does not become a distraction from its core operations.

“I look for positioning in the marketplace first and [the business'] distribution base, and is it going to add different customers, [or] are they exactly the same customers?” he explains.

“Or I look to see a product range which was currently not being fulfilled by us. Each case is judged on its merit, so I don't go around desperately looking for businesses.

“It's amazing in our industry: as soon as you've bought one or two, people come along all the time, ‘Oh, do you want to buy mine, too?’. Nine times out of 10 I'm not at all interested, but they come along and you measure them on their own merits.”

According to Andrew, often the most valuable asset you purchase is not the business itself, but rather the skills and experience of its employees.

“Do you know what? They're the most valuable assets often,” he says.

“When we bought Brookvale Meats, the business itself was worthless really. The best thing in it were the two butchers that we acquired and they're gold.”

Hear more insights from Andrew on business mergers and how he used them to boost his year-on-year turnover by 80 per cent, on the My Business Podcast now!

Distressed assets: business bargain or cash sinkhole?
mybusiness logo

Related Articles

promoted stories