Subj : Explained: Why some businesses get sold for $1
To   : All
From : News Person
Date : Sat Feb 24 2024 01:30 pm

The Warehouse, famous for being "where everyone gets a bargain", sold the
Torpedo7 brand for $1 this week. That price tag might sound like an absolute
bargain but there is much more to these types of deals than meets the eye.

For a start, that $1 deal usually encompasses a bit of baggage.

You might be selling someone the assets of a business for $1, but you're also
selling its liabilities, says Bruce Cattell, CEO of LINK Business Brokers.

"There may be liabilities associated with a business that could be quite
substantial in value," he said.

Typically, the reason a business is sold for a dollar is because there is an
element of distress within it and the current owner is not prepared to invest
the resources to sort that out.

"In other words, it's not performing as well as it could be and the owners
have to look at that think, `Okay, am I going to put the extra time and
resource into trying to fix this or would I better off cutting my losses and
focusing on what I'm good at?'" Cattell said.

The Warehouse Group said this week the sale of Torpedo7 to Tahua Partners Ltd
would allow the company to focus on its core brands and improve the Group's
financial performance.

What's in it for the buyer?
When businesses are sold for a remarkably low price, this is usually because
the underlying liabilities or contingent liabilities (things that could
happen to the business in the future) make it sensible for the owner to take
the dollar and get those things off their plate, Cattell said.

So, why would a buyer take on that business?

"The opportunity for the buyer ... is they will have looked at [the deal] and
thought, `We're prepared to put the time and effort and potentially more
capital into fixing this. We think we can make a difference and turn it into
a profitable business'."

A buyer would also do their due diligence before agreeing to a $1 sale,
Cattell said.

"They would look at the quality of the assets they're buying for a dollar...
and make sure there are no unknowns associated with that."

Cattell said a high-profile company like the Warehouse Group would not have
just sold Torpedo7 for a dollar to anyone.

"They will be very keen to understand that the buyer has a plan for the
business and the financial backing and the wherewithal and management
expertise ... because they won't want to be associated with a situation where
the business deteriorates or fails."

So, why the $1 price tag?
Cattell said there must be consideration in a contract.

"When you have a contract with somebody, one of the elements is there needs
to be consideration," he said.

Consideration is the exchange of something of value by each party in a
contract.

"The consideration in this kind of contract is `I'll pay you a dollar and
I'll take this problem off your hands in return'."

Selling businesses for a dollar is not all that common - but it does happen.

Stuff CEO Sinead Boucher famously bought the company off its Australian
owners Nine Entertainment for $1 in 2020, but Cattell said this kind of
transaction takes place for businesses of all shapes and sizes.

"If you're a buyer and somebody offers you a business for a dollar, you have
to have a very good look at it and really understand the scope of the
liabilities that you are taking on . because there will be a reason why [it's
$1]," he said.

Cattell said both parties involved in the Torpedo7 sale would not have gone
into the situation lightly.

"[A $1 sale] looks kind of weird in the headlines, but it may prove to be a
pretty positive thing for the seller over time.

"And the buyer will also be seeing opportunities in this going forward
presumably, otherwise they wouldn't be doing it. So, it could be a win-win
for everybody."

--- Mystic BBS v1.12 A44 2020/02/04 (Windows/64)
 * Origin: S.W.A.T.S BBS Telnet swatsbbs.ddns.net:2323 (63:10/102)

.