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M&A Strategies for Bankruptcy and Distressed Companies

By Harvard Law School Program on Corporate Governance

(Editor’s Note: This post is by John M. Reiss, Matthew J. Kautz, Thomas E. Lauria, and Gerard H. Uzzi of White & Case LLP.)

The beginning of the credit crisis in mid-2007 and other recent economic trends have increased the number of distressed companies that are seeking to sell assets as part of their plans to improve their financial condition or undergo other corporate debt restructurings. Based on recent financial data, the number of distressed companies soared from the fall of 2007 to the summer of 2008, as have the number of downgrades of corporate bonds.

Companies with sound fundamentals may become available at attractive prices in the coming years, particularly compared to the sometimes-inflated valuations attached to many companies in the non-distressed market. However, buying distressed assets and companies inside or outside of bankruptcy court poses certain potential dangers and challenges that do not present themselves in the non-distressed M&A market, but also offers more significant upside opportunities for potential purchasers. To capitalize on these opportunities, buyers need to be especially focused on identifying distressed sellers and conducting the acquisition process in a manner that minimizes these dangers while maximizing these opportunities as much as possible.

As more fully discussed in our chapter entitled “M&A Strategies for Bankruptcy and Distressed Companies,” the Chapter 11 process may provide both buyers and sellers with tools that will help them make the best of a distressed merger and acquisition transaction. Among other topics, the chapter considers practical considerations for buyers in distressed M&As, agreements in distressed M&As, and acquisitions pursuant to a ‘363 Sale’ or a confirmed chapter 11 plan.

The chapter is available here.

Full post as published by The Harvard Law School Corporate Governance Blog on May 03, 2009 (boomark / email).