Winning the Game of Distressed M&A: The Playbook

A Troutman Pepper Locke Impact Series

If anything is certain, it is the headwind most markets will feel in the months ahead. The combined pressures of higher interest rates, labor shortages, and supply chain issues will continue to keep most investors and businesses on their toes. With geopolitical tensions also raising concerns, we can be assured that unpredictability is the next norm, at least for the immediate future.

What’s an investor, buyer, or target, to do? In this practical series, we provide expert insights and actionable tips from the trenches of middle-market distressed M&A. Our attorneys are joined by turnaround advisors to help you prepare for what’s ahead with perspectives from both the buy and sell sides. The playing field has changed, but game plans that are tried and tested in all market conditions give you the best chances to win.

Game on.

Making your next best move requires a thorough understanding of the basics.

In The Fundamentals series, we delve into the essentials that will help buyers, sellers, and investors build an informed approach. If under ordinary circumstances an M&A is “the regular season,” think of distressed M&A as “the playoffs.”

Players often enter distressed deal-making with a winner-take-all mindset. These competitive situations usually require — in addition to a heightened sense of urgency — an assurance that no detail is overlooked, and nothing is taken for granted. For buyers or investors in a niche market, there are usually no second chances.

Optimal outcomes begin with preparation and foresight. Issues such as bid protections, due diligence pitfalls, and preference actions — these are just a few of the risks and realities of the game. Here, we shed light on these topics and others, while also providing a few practical insights to help you outperform the competition.

We invite you to post your comments and questions on our YouTube channel.

Protecting Your Blindside: Executive Compensation Considerations

Distressed companies navigating the Bankruptcy Code’s standards for retention and incentive plans, including Section 503(c) requirements for key employee retention and incentive plans, may be subject to claims of the company’s creditors. In this video, Paul Porretta discusses avoiding missteps related to potential adverse tax consequences and vulnerability to preference claims.

Game Time Decisions: The Pros and Cons of Being a Stalking Horse Bidder

In this video, Partner Deb Kovsky takes a closer look at strategic considerations of becoming a stalking horse bidder – one of the unique features of Section 363 auctions.

Blocking and Tackling for Fiduciaries and Tax-Qualified Defined Contribution Plans

Cost saving measures may be available for distressed companies with tax-qualified defined contribution plans. In this video, Partner Paul Porretta highlights those occasions, as well as related fiduciary concerns.

Blocking and Tackling for Bidders: Five Key Issues in Section 363 Sales

Section 363 sales provide strategic and financial purchasers with abundant opportunities, but buyers should be aware of its risks and limitations. In this video, Partner Evelyn Meltzer discusses five key issues for buyers to consider when engaging in a Section 363 sale.

ERISA Plans: Positioning Your Team for the Win

In the context of a distressed sale, understanding the mechanisms of ERISA plans and the potential liabilities they can trigger is essential to plan and execute a successful transaction. In this video, Partner Paul Porretta explores the key fundamentals to know from both the buy and sell sides.

Breaking Tackles: ‘Free and Clear’ Deals Via Section 363

While Section 363 of the Bankruptcy Code enables a buyer to acquire the debtors’ assets free and clear of virtually all liens, claims, and encumbrances, several important liabilities may remain. In this video, Partner Deb Kovsky takes a closer look at areas with potential post-sale exposure, including environmental, products liability, and tort claims.

Keeping Your Eye on the Ball: ERISA and Executive Compensation Issues

Understanding employee benefits and executive compensation issues, and proactively addressing them, can help avoid complications in a distressed transaction. In this video, Partner Paul Porretta provides a high level overview of compensation plans that distressed companies need to know to help them reduce expenses and potential liabilities ─ both pre- and post-bankruptcy.

Maximizing Performance: Executory Contracts and Unexpired Leases

In this video, Partner Deb Kovsky provides an overview of the important role executory contracts and unexpired leases play in asset acquisitions in a bankruptcy.

The Stalking Horse Bidder and “Protecting the Plate” in a Section 363 Sale

Serving as the stalking horse bidder in a Section 363 sale provides financial and legal protections, as well as a leg up in acquiring the debtor’s assets. In this video, Partner Evelyn Meltzer will help you to understand and protect these important rights.

Could Net Operating Losses Be Your Next Franchise Player?

When utilized properly, the law allows for NOLs to offset certain gains. This primer, presented by Partner Howard Goldberg, provides an overview of their mechanisms and how they are leveraged to maximize a buyer’s returns on investments.

The Benefits and Pitfalls of Acquiring Assets Via an Assignment for the Benefit of Creditors (ABC)

In this video, Evelyn Meltzer discusses the opportunities and risks for would be acquirers looking to capitalize on the potential of distressed middle market companies by acquiring assets via an assignment for the benefit of creditors.

Traps for the Unwary in Distressed M&A Transactions

Through proper planning and execution, sellers of distressed assets ─ and their officers and directors ─ can mitigate potential risk and liability. In this video, Partner Todd Feinsmith provides a checklist of common pitfalls, and offers strategies to help avoid them.

The right preparation pays off at game time.

In distressed M&A, crucial red-zone decisions are made confidently when possible or likely scenarios are understood well in advance. For example, sellers who know how to position their companies and assets for value can expect better results. For buyers, sponsors, and investors, an awareness of the nuances of bankruptcy law can make the difference between a post-closing win or loss.

In this On the Field series, we examine how the game is being played in today’s markets. We consider the trends, current conditions, and levers affecting mid-sized deals, as well as our predictions for the months ahead. Our attorneys, turnaround advisors, and other experts will also provide insights to help you navigate a variety of legal and business challenges you might expect to see before, during, and after your next deal.

We invite you to post your comments and questions on our YouTube channel.

Preparing the Game Plan: Considerations for Buyers of Distressed Assets

Buyers, investors, and sponsors benefit from understanding the business and legal implications of buying a distressed asset. Watch as Pat Bellot of Phoenix Management discusses the potential risks with Partner Joe Kadlec.

Selling a Distressed Asset: The Long Game of Maximizing Value

Priming a distressed company for sale is not a quick fix. In this video, Pat Bellot of Phoenix Management sits down with Partner Joe Kadlec to consider the seller’s options, both in and outside of bankruptcy.

State of Play in Navigating Distressed Middle Market M&A

What do today’s players face as they look to capitalize on their next opportunity? In this video, Partner Joe Kadlec is joined by Pat Bellot of Phoenix Management to discuss the landscape.