(The following is an excerpt from our 1031 Advisor newsletter located here )
Two companies, Company A and Company B, were competitors. In the past, Company A borrowed heavily to expand. Company B kept its debt at a minimum. When the economy slid into recession, customers disappeared and profit margins were squeezed, reducing profits.
Company A initially cut costs as far as it could, sometimes making repeated cuts thus sending shock waves through its workforce. Company A then turned to reducing working capital and inventory to conserve its cash. Company B’s low overhead enabled it to survive without such drastic reductions.
Facing default on its loans with its Bank, Company A offered to sell its business to Company B.
The offer was a tremendous opportunity to acquire distressed assets at a fraction of the cost compared to a couple years ago. Company B weighs its options:
