What financial preparation can help prevent you from losing a deal?
If you have a successful bid, you may need to fund the entire purchase price in cash within days. That means that prior to the deal, you need to prove financial wherewithal and make sure the funds are available for immediate transfer. If you don’t, you could lose the opportunity.
Why is due diligence so critical, yet so difficult, to conduct in distressed asset acquisitions?
When a company faces dire financial difficulties, it can overlook the proper maintenance and safeguarding of assets, or, worse, internal problems can lead to fraudulent activity. During the due diligence process, buyers or their representatives need to scrutinize the book values and make sure they feel extremely comfortable with the assets to be purchased. In almost all of these deals, all sales are final. That means no practical recourse for post-closing issues, whether in the form of indemnification, set-off or otherwise.
Due diligence in these situations requires special agility, skill and resources. Buyers can make due diligence requests with extensive checklists and hope that the seller will provide them with meaningful information. But buyers can’t guarantee that sellers will respond, particularly on such a compressed time frame.
We always recommend you contact your legal and financial advisers as early in the process as possible. Your advisers need some lead time to order and analyze searches on UCC filings, tax liens, pending litigation and the like. If the seller is in bankruptcy, counsel must review the bankruptcy docket and relevant filings and understand the procedures of the applicable bankruptcy court.
What should happen immediately following the purchase?
If you don’t safeguard your investment, it could disappear. Make quick arrangements for the shipment and storage of assets — this helps ensure that you receive the full value of what you bought instead of items disappearing through the back door. In liquidations, you may need to vacate a leased facility within a short time frame.
Make sure you can meet those deadlines or work out an arrangement with the landlord to avoid hefty per diem penalties or disputes. When possible, put a 24/7 security service on the premises after you complete the transaction.
In a distressed asset transaction, conventional deal-making protocol may not necessarily get the deal done. However, buyers who can act swiftly and intelligently in this opportunistic context can reap significant rewards. With the right advisers, those who understand the nuances of this market, you can turn other businesses’ losses into gains for your business.
Steven M. Weiss is a partner in the Corporate Practice Group and the Restructuring & Insolvency Service Group at Levenfeld Pearlstein, LLC. Reach him at (312) 476-7503 or [email protected]. Steve Roemer is the president and CEO of Solid Asset Solutions, LLC, a firm that provides expert navigation services for distressed asset acquisition opportunities, as well as liquidation services. Reach him at (847) 353-1361 or [email protected] or www.solidassetsolutions.com.