Distressed M&A Deal Structures: In- and Out-of-Court Restructuring, Receivership, Liquidation, Section 363 Sales

Description

Distressed M&A presents an opportunity to purchase the assets of a seller in financial distress at bargain prices for qualified bidders. It is critical for distressed sellers and buyers to take early and proactive steps to formulate and implement clear strategies designed to maximize optionality, leverage, and control in order to achieve the desired outcome and reduce the likelihood of subsequent attacks on a distressed transaction.

The distressed sale process is completed under a compressed time frame, which often causes there to be less diligence done by the buyer. Therefore, it is critical for purchasers of distressed assets to understand the legal risks associated with out-of-court sales, as well as the protective measures offered during in-court Chapter 11 sales.

For sellers, distressed M&A represents a method to obtain short-term liquidity to remain solvent. For instance, the rationale for the divestiture of a non-core asset could be to use the sale proceeds to meet near-term debt obligations. Alternatively, the seller may want an outright sale of its entire business, which is usually done in an effort to avoid the onerous restructuring process.

When structuring the acquisition of a distressed business, deal parties must evaluate whether to pursue an asset sale or stock sale, both of which have significant legal, valuation, and tax implications. When acquisitions occur through a Chapter 11 bankruptcy proceeding or Section 363 sale, buyers and sellers face additional legal hurdles. Also, in a Section 363 sale there are often pre-petition solicitations that culminate in the selection of a lead bidder or "stalking horse," that establishes a bidding floor and purchase structure. There are additional advantages and disadvantages to stalking horse status that must be considered.

Listen as our experienced panel discusses opportunities and challenges in distressed M&As and offers strategies for deal counsel for structuring the deal both inside and outside of a bankruptcy proceeding, conducting due diligence, and integrating the distressed business post-acquisition.