Liquidation or going concern: setting the floor and ceiling of a negotiation

Two values, two logics

• Liquidation value: what the separate sale of assets would yield, net of realisation costs and preferred claims. It is the floor.
• Going-concern value: what the continuing business is worth, given required investment and assumed liabilities. It is the ceiling for a rational buyer.

Building liquidation value

1. Start from the balance sheet, line by line.
2. Apply realistic haircuts: inventory, doubtful receivables, specific assets.
3. Deduct procedure costs and priority creditors (employees, tax, secured lenders).

Building going-concern value

1. Adjust EBITDA for the distressed period.
2. Cost the turnaround plan: working capital to rebuild, deferred capex, restructuring costs.
3. Value normalised cash flows with a consistent risk premium.

Reading the result

If going-concern value clearly exceeds liquidation value, an offer makes sense and the gap defines the negotiating space. Otherwise, the discussion is about assets, not a business.