Not all mergers and acquisitions involve enormous sums of money changing hands.
Sometimes the company is for sale because it’s distressed, which means it is facing severe challenges to ongoing business transactions.
“The definition of a distressed business could be different definitions, including liquidity problems, significant liabilities, business is changing, third parties creating pressure,” said Michael Stewart at Faegre Drinker. “Companies have a lot of options. One of them is to go through a sale process.”
Other options are receivership or bankruptcy.
“Let’s say you have a distressed company, that wants to do a sale, but there are other options to buy time. The company may want to transition, or do a conventional sale, sale under the bankruptcy court, a state court receivership or assignment for betterment of creditors, There’s also a possibility that a lender can do a UCC foreclosure, when a buyer needs more comfort.”
The buyers may prefer a bankruptcy sale with the authority of the federal court behind it, Stewart said. “State court receivership are strong also but not as much as federal courts.”
Bankruptcies can last a long time, but sales can happen quickly, Stewart notes. Often when a business goes into bankruptcy court it’s with the idea of getting a prompt sale of the assets. There’s a standard set of procedures all over the country, he noted.
Sales of assets are permitted under broad authority set forth in 11 U.S.C. § 363. “The only limitation is the creativity of the investment bankers and lawyers, Stewart said, although sometimes a question arises about appeals from a sale order.
Stewart’s predictions for the upcoming years include more bankruptcies, in light of the increase in interest rates, inflation, labor shortages, and supply chain disruptions. A lot of stimulus money allowed adequate liquidity, and now companies are going to pay more to borrow money,” he said.
“If there are more costs and challenges, there are going to be companies that fail. If there’s one thing we’ve learned, everything is cyclical, we’ll see how deep [the economic troubles are],” he said.