By Rob Adamson, Restructuring, Recovery and Insolvency Partner, Armstrong Watson
Thomas Cook offered a one stop shop for consumers, known for their slogan “don’t just book it, Thomas Cook it!” However, the Thomas Cook collapse also illustrates how failing to prepare for an acquisition can have terminal consequences.
Thomas Cook’s problems started in 2007 when it bought the MyTravel business (better known for the AirTours brand) at a time when MyTravel was loss-making but Thomas Cook were optimistic that they would be able to find the synergies necessary for it to be successful. Unfortunately, the theory did not filter into reality. Thomas Cook’s woes increased further when it entered into a joint venture with Co-op Travel in 2011, adding a further 460 retail outlets to its portfolio at the same time as other businesses were looking to grow their online presence. The increased debt burden from the two mergers would eventually lead to problems servicing its debts and the eventual collapse of the whole group.
We often come across the after-effects of an ill-fated merger. Whilst having similar values and culture are important for an acquisition to be successful, it is essential that you carry out adequate due diligence before proceeding – unearthing skeletons in the closet is important as is factoring in some headroom for the unknown. Whilst the Arab Spring and the Icelandic ash cloud would have had a negative impact on Thomas Cook regardless, acquiring a business which needed additional cash to meet its ongoing costs only compounded its problems at a time when it needed to use its cash elsewhere in the business.
But buying a distressed business can also be an opportunity to expand your operations without the worry of the incumbent debt. We have extensive experience with assisting interested parties in making acquisitions through accelerated mergers and acquisitions, both as a management buyout tool and for a third party purchaser.
Whether you are looking to make an acquisition or your business is struggling following an acquisition, please get in touch with our Restructuring, Recovery and Insolvency team who will be able to provide you with the appropriate advice. Call 0113 2211 300 or email firstname.lastname@example.org