I don’t usually look at turnaround deals for acquisition. This for a variety of reasons, but the main one is I do not believe I am smart enough to handle them. Another reason is I haven’t seen too many over the years. Now, however, they are obviously more numerous in this nasty little recession. A turnaround can be defined as any company where the business model is underperforming and needs the help of special management skills (and/or capital) to recover. In many cases turnarounds can never recover. Right now many deals I see look like turnarounds on paper but are really just showing a recession type downturn which has little to do with a problem business model.
One thing I have learned over the years of buying businesses is that a company must be stabilized before you buy it. Otherwise you are buying a turnaround and you better have the special skills to deal with that.
Companies are on the downswing right now and, just like stocks, they have to bottom out before they can be deemed to be stable. Don’t buy at the bottom, wait for the bottom and then buy. The company should show signs of life before jumping in. It is all too easy to pay a rock bottom price for a company only to find out it hasn’t bottomed out, and in fact it’s on the way out.
