1.1 – Value of a Company
The assets of a company can take several forms including:
- The value of the physical assets and inventory of the company; or
- The value of the intangible assets of the company
Companies which value is primarily determined by physical assets can include construction contractors (for example the heavy machinery owned by the company).
The value of physical assets is often separate from the business itself; purchasers can acquire heavy machinery from a company in liquidation and integrate it into their business with little to no value proposition from any association with the original business of the company; the value is derived from the asset itself.
Due to the lesser association of the value of physical assets and the original business, physical assets can be sold by auction.
Intangible assets often take the form of the company’s customer list, brand and website.
Regular reoccurring orders from customers or brands which are well known can be perceived as valuable; potential purchasers can acquire a business in liquidation and have the opportunity to acquire a business which is already generating sales.
The value of intangible assets is often far more intertwined with the original business. In contrast with physical assets, purchasers will make a much closer assessment to:
- The company’s market perception
- The financial performance of the company prior to liquidation
- The customer list of the company, including revenue by contact, the type of customers and the frequency of orders
- The design of the website along with the general performance of the website
Prospective purchasers are far more likely to assess the market perception of any intellectual property, in particular the brand associated with the business forming their opinion on the value of a company’s intangible assets.
In contrast with physical assets, the value proposition of intellectual property is far more closely intertwined with the original business.
Unlike physical assets, the value of intangible assets of a company in liquidation can deteriorate if the liquidators do not take steps to trade the business of the company, or other actions to preserve the value of the business. The level of deterioration of perceived value will depend on the nature of the business.
For example, if a company’s intangible assets largely consist of active customer contracts, which could be easily replaced by competitors, the liquidator must act promptly to preserve (typically by continuing to trade the business of the company) and sell the business of the company.
1.2 – Quality Lighting Wholesalers
Quality Lighting Wholesalers (QTW) traded a business selling lighting products in New Zealand.
QTW’s business was originally established in the 1920s.
Upon our appointment, we undertook an assessment of the business and formed the view that while QTW operated in a niche area of lighting, QTW had the potential to grow provided a suitable purchaser acquired the business.
We determined that QTW had a good reputation in its industry with a good customer base and favorable market perception.
We decided to retain the staff of QTW and continue to trade the business while we undertook a marketing campaign to sell the business of QTW.
After receiving expressions of interest, we moved forward with the prospective purchaser we deemed most suitable to grow the business.
By continuing to trade the business, we were able to preserve the value of the intangible assets of QTW, primarily being it’s brand while we completed our sale process.
We successfully completed the sale and business handover, resulting in the following outcomes:
- A historic business was able to continue trading under new ownership;
- Employees were offered the opportunity of employment with the purchaser; and
- A partial preferential distribution was paid to staff in respect of their holiday pay and unpaid wages.