Sell-Side Distressed Situations

 

In a word, the economic climate of 2009 can be defined as terrible.  Good companies face many challenges on all fronts and may not be prepared to survive in their current state.  Some of these challenges include:

• The credit crisis and recession
• Declining sales
• Poor A/R performance
• Shrinking Profit Margins
• Excess inventory and A/P
• Insufficient reserves or credit
• A toxic balance sheet
• Covenant and/or payment defaults
• Loss of a major customer or key employee
• Management seeking bridge financing for short term survival
• Obsolete business model and the seeming inability to change

Assisting Companies Undergoing Stress

At Transact Partners, we have the knowledge and experience to help companies deal with these challenges. We can negotiate effectively with lending institutions for the time you need to explore and understand all your options. We can quickly assess your situation, determine the best strategy to turnaround the company and expedite the plan for recovery. A full or partial sale of the company may be the best solution for owners and other stakeholders. Our job is to unlock hidden value while getting the best possible price and terms in a sale transaction. Strategies employed include:

 

• Evaluating credit exposures and documentation, offering recommendations on corporate governance and compliance topics, reviewing employee, customer, creditor and vendor relationships & agreements
• Protecting the company and its officers from personal liability by ensuring proper board action documentation and by holding compliance audits and reviews
• Implementing approaches that may include cash conservation methods, an immediate sale of all or part of the business to obtain the remaining value, or refinancing through an out-of-court transaction
• No-Cash Mergers – Explore the possibility of merging with a company where synergies exist in operations, industry or product lines

Turnarounds of Distressed Companies

 

When you reach serious levels of distress, you will be forced to implement a Turnaround Plan. The first component of a Turnaround Plan is restructuring your organization so it can survive for the next 90 to 120 days. This requires extreme cost cutting, immediate liquidation of assets and negotiating new terms on outstanding debts. Next, we will help determine if the organization has a "going concern value" in excess of its liquidation value. Can your company reorganize and generate value in excess of the value from selling off its assets?  If the answer is “yes”, than you need to implement a long-term reorganization plan. We are again seeking to “buy time” to explore all options including out of court liquidation, merger with a stronger partner, acquisition by a competitor or consolidator.

 

Distressed M&A versus Healthy M&A

 

Distressed M&A is specialized and follows a distinct process, the key differences between distressed M&A and healthy M&A are as follows:

 

Accelerated Transaction Process

Given the diminishing value of a business under distress, the specialist advisor must be skilled at quickly assessing and articulating the potential benefits and helping to minimize the perceived risks of acquiring a distressed business.

 

Valuation

Distressed company valuations require modifications to conventional healthy M&A processes.  A successful distressed adviser has the ability to apply unique subjective and analytical factors in determining and defending the valuation of distressed assets.

 

Multiple Stakeholders

Creditors and owners have conflicting agendas that require strong leadership, negotiation skills and constant communication to gain consensus while keeping the transaction on course.

 

Response Time

There are trade offs between time and value. Gaining more time requires stabilizing the business and preserving liquidity by effectively accessing potential buyers and negotiating with lenders and creditors.

 

Having the Right Advisory Team is the Difference

 

For distressed sellers, having the right advisory team is important to achieve the best possible outcome in an unfortunate situation.   As referenced above, it is critical to have objective advisors with a strong legal, operations and M&A background.  Brian Reilly, our co-founder, is an attorney with over 20 years of domestic & international corporate experience.  Our other co-founder, David Boykin, has purchased and restored 7 distressed companies to profitability.  Put their experience to work for you.

 

 

 

Contact Transact today for more information!!