The Middle East and North Africa (MENA) region is facing a challenging economic outlook in 2023, with growth expected to slow down to 1.9% from 6% in 2022, according to the World Bank⁸. The region is also grappling with high inflation, rising food prices, social unrest, geopolitical tensions and still in the shadow of uncertainty of the COVID-19 pandemic.
These factors have created a fertile ground for distressed businesses, especially in sectors such as retail, hospitality, real estate, and industrial¹.
Distressed businesses are those that are underperforming, facing liquidity problems, or struggling to repay their debts. They may also be subject to legal disputes, regulatory issues, or reputational damage.
Distressed businesses often have valuable assets that are undervalued or underutilized, such as land, buildings, equipment, or intellectual property. These assets can offer attractive opportunities for investors who are willing to take on some risk and provide capital, expertise, and restructuring solutions.
Investing in distressed businesses can generate high returns by unlocking the hidden potential of the assets, improving the operational efficiency and profitability of the business, and creating value for the stakeholders and the community. However, investing in distressed businesses also involves significant challenges and risks, such as dealing with complex legal and financial situations, negotiating with creditors and other parties, managing cultural and organizational changes, and navigating the uncertain market conditions.
Some examples of distressed businesses in the Middle East are:
- Retail, financial services, real estate and industrial companies that have been affected by the economic slowdown, inflation, market volatility, weakening demand, and changes in tax and regulation in the region.
- Hotels that are suffering from low occupancy rates due to the COVID-19 pandemic and the decline in tourism and business travel.
- Industrial parks that are facing operational challenges due to the supply chain disruption, rising energy costs, and outdated facilities and technologies.
- Family businesses that are facing succession issues, governance problems, or competition from new entrants.
Therefore, investors who are interested in pursuing distressed business opportunities in the MENA region need to have a clear strategy, a strong team, and a deep understanding of the local context.
They also need to be prepared to act fast and decisively, as distressed businesses often require urgent intervention and resolution.
How to Find Distressed Businesses
There are different ways to find distressed businesses in the Middle East that may offer attractive investment opportunities.
Here are some possible methods:
- You can use a broker that specializes in distressed company transactions. A broker can help you identify potential targets, conduct due diligence, negotiate deals, and provide advisory services. Valley Boris International is such a trusted agency. A broker may also have access to exclusive listings or networks that are not available to the public.
- You can search for distressed businesses online using various sources of information, such as business information sites, bankruptcy court filings, news articles, or industry reports. You can use keywords such as "distressed", "insolvent", "default", "liquidation", or "restructuring" to filter your search results. You can also use geographic or sector-specific criteria to narrow down your search.
- You can leverage your personal or professional contacts to find distressed businesses through word of mouth. You can ask your friends, colleagues, clients, suppliers, or competitors if they know of any businesses that are facing financial or operational difficulties. You can also attend events, conferences, or seminars where you can network with other investors, entrepreneurs, or experts in your field of interest.
- You can approach distressed businesses directly and express your interest in acquiring them or their assets. You can contact the owners, managers, creditors, or advisors of the distressed businesses and propose a deal that can benefit both parties. You can also use intermediaries, such as lawyers, accountants, or consultants, to facilitate the communication and negotiation process.
However, finding distressed businesses is only the first step in the investment process. You also need to have a clear strategy, a strong team, and a deep understanding of the local context to successfully turn distressed businesses into real estate gold.
HOW TO TRANSFORM DISTRESSED BUSINESSES
Here are some tips for investors who want to turn distressed businesses in the MENA region into real estate gold:
- Identify the right targets: Investors should look for distressed businesses that have valuable real estate assets that can be repurposed, redeveloped, or sold at a profit. For example, investors can acquire hotels that are suffering from low occupancy rates and transform them into residential or office spaces⁴. Alternatively, investors can buy industrial parks that are facing operational challenges and upgrade them with modern facilities and technologies⁶. Investors should also consider the potential of new projects targeting emerging sectors such as life sciences, which can spur investment activity and innovation in the region⁶.
- Conduct thorough due diligence: Investors should conduct a comprehensive analysis of the financial, legal, operational, and market aspects of the distressed business before making an offer. They should assess the quality and value of the assets, the liabilities and obligations of the business, the competitive position and growth prospects of the sector, and the regulatory and political environment of the country. They should also identify the key stakeholders and their interests, such as creditors, shareholders, employees, customers, suppliers, and regulators.
- Negotiate effectively: Investors should negotiate with the stakeholders of the distressed business to reach a mutually beneficial agreement that allows them to acquire the assets at a fair price and terms. They should also seek to obtain concessions or incentives from the authorities or other parties that can facilitate the deal and reduce the risks. For example, investors can ask for tax breaks, subsidies, waivers, or guarantees that can lower their costs or enhance their returns⁷.
- Implement a turnaround plan: Investors should implement a turnaround plan that aims to restore the viability and profitability of the distressed business or its assets. The plan should include actions such as restructuring the debt, improving the cash flow, cutting costs, optimizing operations, enhancing quality and customer service, diversifying revenue streams, expanding markets, innovating products or services², and addressing any legal or regulatory issues. The plan should also incorporate environmental, social, and governance (ESG) criteria that can improve the sustainability and reputation of the business⁵.
- Exit strategically: Investors should exit from the distressed business or its assets at an opportune time that maximizes their returns. They should monitor the market trends and conditions closely and evaluate their exit options carefully. They should also prepare an exit strategy that outlines their objectives, timing, valuation methods³, potential buyers or partners⁷, and exit channels.
Investing in distressed businesses in the MENA region can be a rewarding venture for investors who have the vision, skills, resources¹², and patience to turn challenges into opportunities.
By following these tips, investors can transform distressed businesses into real estate gold that can benefit not only themselves but also the economy and society of the region.
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