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Distressed M&A

COVID-19, decarbonisation, rising gas and transport prices, changing supply chains. In a rapidly changing world, a rapid increase in the number of deals with a seller or target in (financial) distress (distressed M&A) has been anticipated for some time. So far, the wave of distressed deals has failed to materialise. But that these deals will still take off seems almost inevitable. 

What is the impact of a distressed situation on an M&A deal?

In a distressed situation, the seller and target are under great pressure to reach a deal quickly. Whereas in a normal situation several months are set aside for due diligence and negotiations, a distressed deal is completed in a few weeks or even days. Distressed creditors and other stakeholders claim an active role in the sales process. Time is literally worth money. These circumstances create a unique dynamic with special challenges. Timely and good preparation is crucial for a successful deal.

What should you pay attention to?

  • What is the cause of the (financial) distress? Can this cause be removed or is the target company inherently unviable? Is a relaunch from bankruptcy or debt restructuring necessary or can it be omitted?
  • Which compulsory creditors and other stakeholders are involved and what are their interests and dependencies, rights and obligations?
  • What opportunities and constraints follow from the different transaction types (e.g. equity, asset/liability, debt restructuring) and which type of transaction is appropriate for your situation?
  • How much time is available to get a deal done? How do you use this time most effectively? Is there room for a full sales process or just a fire sale? A competitive sales process or one-to-one?

Practical tips

  • As a seller, be prepared for a possible distressed deal. Think from scenarios and start preparing well before the water reaches your lips. A list of possible bidders, a vendor due diligence report, a pre-completed carve-out and advisers who are up-to-speed: it helps to stay in the lead and maximise your negotiating position.
  • Identify compulsory creditors and other key stakeholders, their interests and dependencies and their rights and obligations in a timely manner. Ensure they are and remain on board during the sale process.
  • Assemble a knowledgeable and focused deal team that is able to work under pressure and rapidly changing circumstances and is also empowered to make quick decisions.
  • A sure deal at a discount or an uncertain one at the top price? Make sure you know your position at all times and dare to make difficult choices.
  • Together with the deal team, exercise tight process direction, monitor deadlines and keep alternatives open for as long as possible.

As timely and proper preparation is crucial for a successful deal, it is wise for you to get timely advice and guidance to bring the possible sale process to a good result in a responsible and efficient manner.

What can van Benthem & Keulen do for you?

The specialists at Van Benthem and Keulen will be happy to help you turn your distressed deal into a success. In collaboration with our clients, we will work out a process strategy and deal structure appropriate to your situation and organisation. In doing so, the experienced M&A team works seamlessly with specialists from other disciplines within our organisation, including in the areas of Corporate, Employment Law, Insolvency & Restructuring, IP/IT and Banking & Finance. This puts us in a position to optimally prepare for and guide you through the sales process, from pre-transaction restructuring and due diligence to closing the deal.

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