Buying Distressed Businesses

A strategy for acquiring businesses at deeply discounted prices by focusing on the "3 D's" - Death, Divorce, and Distressed situations. This approach allows buyers to purchase businesses for significantly less than their intrinsic value by targeting specific circumstances where owners need to sell quickly.

Key Points:

• The 3 D's of Business Buying Opportunities:

  • Death: When business owners die and heirs don't want to inherit
  • Divorce: When owners must sell due to marriage dissolution
  • Distressed: When businesses face financial difficulties or over-leveraged situations

• Real Example Mentioned:

  • Business normally valued at $15-20 million
  • Acquired for just the cost of inventory
  • Buyer was a supplier to the business
  • Result: Cut COGS (Cost of Goods Sold) in half due to vertical integration

• Strategy Benefits:

  • Buy below intrinsic value
  • Acquire established businesses
  • Potential for immediate cost savings through synergies
  • Opportunity to purchase at inventory cost only

• Key Focus:

  • Target businesses where owners are forced to sell
  • Look for situations where quick sales are necessary
  • Focus on opportunities where standard valuation metrics don't apply