Valuation and turnaround of distressed firms : a twin case study analysis

Abstract

PURPOSE: The purpose of this study is to recognize the significance of business valuations and turnaround strategies in distressed companies. This will provide investors with reasonable knowledge when it comes to investing in companies in distress. DESIGN: The objectives of the study were achieved through the analysis of two real-life case studies together with semi-structured interviews carried out with experienced professionals involved in this field. FINDINGS: The findings of this study present the feedback obtained from valuation analysts and turnaround managers that shed light on the valuation and turnaround of distressed firms. Moreover, it identifies suitable valuation methods to value distressed companies and the issues and assumptions taken during valuation. Furthermore, it identifies the turnaround and restructuring strategies required to save a firm from bankruptcy. CONCLUSIONS: The study concludes that the discounted cash flow model and the net asset value model are two suitable valuation methods used to value companies in distress. Furthermore, the turnaround strategies have to be interlinked with each other focusing both on short and long-term measures. Several recommendations were put forward to the investor to achieve a profitable investment in distressed companies. VALUE: This study should be of contribution to all investors considering to invest in distressed firms, valuation analysts and turnaround managers.