Distressed Company Acquisition

Scott Galloway shares his experience with distressed investing, particularly focusing on acquiring bankrupt or struggling companies at a discount and turning them around for significant returns.

Distressed Investing Strategy

• The less sexy the investment, the higher potential returns

  • "The sexier an investment, the lower the returns"
  • "No one wants to hang out with bankrupt companies... it reeks of death"
  • Unsexy investments like bankruptcy deals have less competition

• Best performing asset class in Scott's experience

  • His biggest win: 30x return bringing a consumer company out of bankruptcy
    • $2.5 million investment turned into $75 million
    • Took six years and "almost went to zero two or three times"
    • Described as "total classic, ton of hair on it"
    • Regulatory play in a highly unsexy space

• Yellow Pages example (Dex Media)

  • Invested $4 million in declining yellow pages business
    • Business was declining 12% per year
    • Traded at 2-3x EBITDA because "everybody knew they were going away"
  • Strategy involved:
    • Buying yellow pages companies in different regions
    • Closing headquarters, keeping only 30% of best salespeople
    • Cutting costs faster than revenue decline (>12% annually)
    • Transitioning from yellow pages to CRM software company
  • Result: 4-5x return on investment

• Key success factors:

  • Finding value others miss
  • Willingness to deal with complicated, unsexy businesses
  • Cutting costs aggressively
  • Transforming business models when possible
  • Patience through difficult periods