Several times the motivation for selling a company is a crisis or insolvency situation of the business: these are the distressed sales, or distressed M&A, that carry its own characteristics and deserve some special treatments.
In these situations, time is usually a crucial matter and the sale is one alternative to remedy the credit scarcity, the missing capacities of debt settlement and of the current partners to provide additional financing to the business, deteriorated business performance or a range of other variables that make part of a complex scenario of the M&A work development.
These distressed transactions carry a risk much more elevated for the buyer and premise that he will implement measures to recover the business. The buyer also has the expectation of having high earnings with the operation, due to the incremental risk that assumes. As a consequence of these pressures, the price tend to be much inferior of what could be achieved by the business in a regular operation, with a lower margin of conditions negotiation.
In distressed sales is adequate to evaluate and adjust the plan of work to harmonize the process of the sale’s negotiation with a strategy and action and recovery plan that allow keep the company operational until the sale, preserving the most interests of the sellers. Depending on the variables involved and on the disposition of the sellers it can be advantageous to develop a recovery, restructuring, debt renegotiation and business model plan, before starting a distressed M&A.
One of the available tools for buyers, considering the acquisition of stressed assets, is to make that acquisition in the context of judicial recovery. The article 60° of the Bankruptcy Law (Lei da Falência: n° 11.101/05) allows the disposal of the asset free of any encumbrance and without succession from the acquirer, since it’s approved in the judicial recovery plan. In this case, the transaction is even more complex and require planning in line with specialized legal advice.
by Tássia Warken da Rosa