June/July 2010 / Array
A Primer for the Distressed M&A Market
Due to the downturn, middle-market businesses in all industries are finding strategic opportunities to acquire competitors, integrate key suppliers and combine with other financial or industry partners through distressed M&A activity.
These transactions come in many forms, including sale or liquidation of assets, assignments for the benefit of creditors, Chapter 7 liquidations and Chapter 11 reorganizations. Based on the circumstances, finer points of the deals can differ and the number of primary players can range from two parties in direct negotiations to as many as seven stakeholders at a single negotiation table.
Sale or liquidation of assets is often part of the exit strategy for stakeholders. Typically, the distressed business and the buyer retain legal counsel and financial advisors to assist in negotiating and documenting the transaction, finding the parties to the deal and conducting due diligence. In an assignment for the benefit of creditors, also known as an ABC, a distressed business assigns all of its assets to an independent trustee, which then sells or liquidates them to a buyer. Chapter 7 and 11 bankruptcy transactions come about after a distressed business initiates a bankruptcy case through its lawyer by filing a petition for relief with the U.S. bankruptcy court and compared to the other forms of acquisition discussed involve more parties, including court personnel.
