Distressed Mergers & Acquisitions

In times of crisis, selling all or part of a distressed company is often not only the best but also the only viable option for shareholders to recover value. Waiting too long can lead directly to insolvency, and proactive steps are essential to prevent this outcome.

Engaging ConAlliance restructuring experts early opens up a broader range of strategic options, maximizing the potential for a successful transaction. Despite the urgency and complexities involved, it is critical to avoid further strain on core assets such as the company’s reputation, brand image, and essential relationships with employees, clients, suppliers, and financial institutions. There is a clear need for experienced professionals to drive a swift, effective transaction process.

Shareholders and management in crisis situations face a complex web of priorities, including:

• Preserving the company as a going concern,
• Securing liquidity and safeguarding jobs,
• Minimizing liability and personal risk,
• Retaining as much influence as possible over business decisions,
• Protecting reputation, and
• Ensuring manageable debt resolution.

At ConAlliance, we incorporate the priorities of all stakeholders—including banks, management, employees, suppliers, and, when applicable, key customers—into the distressed transaction strategy. Navigating these transactions requires meticulous planning and execution. Our M&A specialists begin by addressing core strategic questions:

• What are the primary needs of existing shareholders in terms of risk reduction and financial stability?
• Is the goal to introduce new capital via a partial sale or pursue a complete exit?
• How can we ensure a discreet transaction process to minimize disruptions and maintain confidentiality?
• What are the relative benefits and limitations of each strategic option?

Furthermore, in close coordination with our clients, we define:

• Investor selection criteria and identify suitable and unsuitable parties,
• Potential for a management buyout (MBO) if it aligns with stakeholder interests,
• Target valuation expectations and feasible transaction terms,
• Whether a partial equity sale or a full divestiture best aligns with objectives, and
• The most advantageous transaction structure—whether an asset sale or a share deal.

ConAlliance’s expertise ensures that every aspect of the divestment process is handled with precision, protecting and enhancing shareholder value under challenging conditions. Our approach allows clients to navigate even the most complex crises with strategic clarity and confidence.

From an investor’s standpoint, it is essential to thoroughly assess whether pursuing an acquisition in a distressed or insolvent situation aligns with realistic success prospects. Key questions include: What are the associated risks, and can they be effectively mitigated or eliminated? What is the financing requirement, and does the acquisition make strategic sense?

ConAlliance provides the transparency necessary for investors to evaluate the insolvency risks alongside the unique objectives of different stakeholder groups, ensuring a well-informed decision process.

Our distressed M&A specialists meticulously evaluate the fundamental drivers behind the acquisition decision, weighing the potential benefits and drawbacks with precision.

Key Considerations in Favor of Acquisition

• Avoiding the stigma and complexities of a formal insolvency proceeding
• Sidestepping repetitive, time-intensive approval processes
• Circumventing competitive bidding wars typical in insolvency sales
• Eliminating the need for negotiations with insolvency administrators, creditor committees, or banks
• Preserving the target’s market position without reputational damage from bankruptcy

Key Considerations Against Acquisition:

• Assuming the inherent risk of insolvency without legal protections
• Foregoing liability privileges typically available in insolvency
• Operating under accelerated timelines due to crisis urgency
• Inheriting unoptimized workforce structures
• Assuming unmitigated restructuring risk

If the acquisition proceeds, ConAlliance structures the deal to achieve optimal outcomes for the buyer. We customize the approach based on the transaction type, employing either an asset deal or a share deal as appropriate.

Asset Deal

In an asset deal, ConAlliance focuses on cherry-picking valuable assets, ensuring buyers acquire only the most beneficial parts of the business while sidestepping unwanted liabilities. Key steps include:

• Identifying attractive assets for selective acquisition
• Evaluating all liens and rights to secure claims or exclusions
• Accurately valuing individual assets, pricing below current market levels where feasible
• Structuring additional goodwill or price components strategically
• Aligning with the insolvency administrator’s interests to facilitate negotiation and transaction completion
• Identifying and mitigating potential liabilities for the buyer
• Reviewing essential contracts and relationships critical for the business’s continuity post-acquisition

Share Deal

Unlike asset deals, a share deal involves coordinating with both the insolvency administrator and existing shareholders. This comprehensive approach ensures alignment and continuity of ownership, making the transaction more complex but potentially rewarding. ConAlliance carefully evaluates target suitability through:

• Assessing the target’s viability as a going concern
• Reviewing any restructuring efforts already undertaken by the distressed company
• Developing or validating a robust insolvency plan, detailing creditor repayment terms, restructuring objectives, and required legal changes
• Pre-negotiating creditor support for the insolvency plan prior to acquisition

ConAlliance’s expertise enables clients to navigate the intricacies of distressed acquisitions with strategic foresight and control. Our team ensures that every decision is thoroughly vetted, aligning each transaction with the client’s objectives and mitigating risks in highly complex crisis scenarios.

Once formal insolvency proceedings begin, an interim insolvency administrator is appointed and later confirmed by the creditors’ assembly. At this point, the administrator assumes not only managerial and dispositional control over the distressed company but also the role of employer, taking on significant responsibility.

Objectives of the Insolvency Administrator:

• Maximizing creditor recovery through effective asset liquidation
• Identifying viable buyers to enable full or partial continuation of the distressed business
• Preserving key employee positions

ConAlliance’s extensive experience in distressed healthcare M&A, particularly in insolvency scenarios, aligns closely with the time-sensitive goals of insolvency administrators. Our support includes:

• Identifying the most suitable “natural” buyer, whether for attractive or challenging distressed assets
• Assisting in determining the enterprise value of the insolvent company
• Supporting the development of restructuring strategies and insolvency plans.

Value ConAlliance Brings to Insolvency Administrators

ConAlliance offers a specialized advantage to administrators by relieving them of intensive strategic analysis and planning requirements, ensuring a thorough review of both the horizontal and vertical value chains to maximize the pool and quality of potential buyers. Specifically, our support comprises:

• Developing strategies for the continuity of core operations post-capacity adjustments, including detailed buyer profiles and optimized workforce structures
• Establishing a shortlist of prospective buyers whose strategic profiles align with the distressed company’s long-term value
• Focusing on adjacent industries rather than direct competitors to enhance horizontal or vertical integration opportunities
• Expanding buyer identification through an international search, targeting firms seeking entry into the German market and benefiting from local technological and engineering capabilities

By partnering with ConAlliance, insolvency administrators not only improve their likelihood of securing an optimal buyer within tight deadlines but also reduce the risk of wasted resources on unsuitable prospects.

Mitigating Risks in Buyer Identification

Errors in identifying potential buyers can have serious repercussions, such as:

• Delays in the sale process due to competitors misusing company data under the guise of interest, leading to additional rounds of due diligence with new buyers
• Reduction in sale price as confidential information leaks, weakening the seller’s position as market pressures increase with the ongoing crisis

Key Benefits of Partnering with ConAlliance

Working with ConAlliance’s M&A healthcare specialists offers administrators:

• Relief from time-intensive tasks, allowing for effective delegation
• Direct and discreet outreach to prospective buyers
• Coordinated company tours with qualified parties
• Access to professionally prepared, valuation-relevant information
• Provision of well-vetted indicative offers to facilitate swift decision-making
• Detailed negotiation strategies and support in establishing optimal pricing and contractual terms
• Preparation and management of the data room and due diligence process
• Full assistance through final negotiations and contract closing

Enhanced Efficiency and Effectiveness for Insolvency Administrators

ConAlliance’s involvement boosts efficiency and outcomes across several critical dimensions:

• Maximizing creditor recovery rates
• Increasing the likelihood of full or partial business continuation
• Preserving jobs within the distressed company
• Reducing the administrator’s time commitment per case
• Shortening the overall insolvency resolution timeline
• Increasing both the probability and final value of the sale
• Accelerating the sale process, thereby minimizing exposure to market risks

ConAlliance enables insolvency administrators to execute their mandates with precision and achieve optimal outcomes under challenging conditions, positioning them for success in even the most complex distressed scenarios.