The Parts May Be Worth More Than The Whole

Today, Chrysler executives in the know anonymously confirmed that Chrysler is considering selling itself in parts to various other auto manufacturers. It seems as though they have determined that their parts are worth more than the whole.

This is not a surprise and is something every business owner should consider if faced with an unsupportable business situation, i.e., declining sales and no way out.

Assets can be valued differently by different investors. For example, some may be interested in the ability to continue the business vision that the owners had, but if rolled into an existing business already operating it may be more effective to purchase the division that interests them as opposed to the entire works. It means less duplication; the purchasing business may already have a sales force or an administrative division, both capable of maximizing what the original selling business could not while carrying the entire overhead load. This makes sense.

Other interested buyers may have a unique fit in their product line that can be filled by a particular product the selling business owns but would be duplicating the rest of the business thus they may want to only buy one section. Another buyer may see a vision for the real estate and may want to purchase a division to reach the real estate it is located on with the intent of scrapping the business and developing a better use of the opportunity.

One buyer may find the inventory worthwhile but not the manufacturing capacity. Another buyer may find the R&D section valuable to get a group of very creative engineers or designers together as a whole and put them to work on other projects but without the dead weight of the existing company dragging them down. A buyer may want the sales force or the distribution pipeline for similar but different products or even for the same type of product but not the ones the seller was distributing. There may be inventions or patents that are desirable to competitors but nothing else. Machinery that may be unique and very expensive to develop, yet not valuable if used to produce unprofitable products, may be valuable to others – more valuable than the entire business.

The point is that collectively, the separate parts may be many times more valuable than the whole as it currently stands. This is easy to understand if the whole is not making any profit; of what value is it to anyone then? But cut into its valuable pieces there may be terrific value to be realized.

We are all familiar with the “chop shops” we read about and see on TV, garages where stolen cars are chopped into pieces and sold as parts because a $25k vehicle whole may be worth $50k in parts. This is the same basic concept.

Thus, in the current down economy, with many businesses forced to face disastrous declines in revenues, those investors with cash (if there are any) should be searching for just such an opportunity. Businesses ready to close their doors, unable to find a buyer for the entire business, should consider the value of selling the pieces. – this may work out best for all.

Think about it and consider it. This could be your best alternative.