Distressed M&A Investing: Exercising Acquisition Opportunities In and Out of Chapter 11 Bankruptcy

Distressed companies can represent attractive acquisition targets. Their stock and debt often trade at prices reflecting the difficulties they face, and they may be under pressure to sell assets or securities quickly to raise capital or pay down debt. However, there are unique considerations when strategic and private equity investors consider deploying capital in distressed businesses and counsel must understand the risks and benefits of bankruptcy M&A options.

Out-of-court transactions lack the imprimatur of a federal court and are subject to challenge, uncertainty, future litigation, and objections by governmental entities. A transaction executed under the U.S. Bankruptcy Code can bind governmental entities and non-consenting parties and limit challenges by dissatisfied creditors. Therefore, complex businesses experiencing distress often require a bankruptcy solution to effectuate a helpful M&A transaction.

Hybrid approaches such as "prepackaged" and "pre-negotiated" bankruptcy reorganization plans are common for troubled companies with sufficient lead time to wrangle an out-of-court compromise before the cash runs out. Alternatively, a sale under Section 363 of the Bankruptcy Code can provide for an expedited transaction, albeit with fewer protections. Creditors or outside investors can, in the most complex transactions requiring the greatest certainty, use a reorganization plan to reorganize, sell, merge, liquidate, split, or otherwise modify a business--even a foreign business.

Listen as our authoritative panel discusses the options available to private equity and strategic investors looking to acquire distressed companies, assets, and debt--both before and after a bankruptcy filing.