Dipl.-Kfm. Martin Franz
Partner
+49 (89) 809 53 63- 0
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The restructuring strategy for the distressed company revolves around a robust, multi-tiered recovery plan tailored to ensure financial and operational viability in the short, medium, and long term. This comprehensive plan is structured into several pivotal components:
The plan segments these activities into financial and operational categories, alongside coordinated communication with all stakeholders:
Financial Measures: These efforts focus on preserving liquidity and enhancing the company’s capital structure by strengthening the balance sheet and securing long-term funding. Strategies include:
Negotiations with Lenders and Creditors: Critical liquidity-boosting negotiations with financial stakeholders, including:
This plan’s structured, multifaceted approach is designed to stabilize finances, streamline operations, and position the company strategically in the market. Through these targeted actions, even companies in severe distress can achieve a sustainable recovery trajectory, demonstrating resilience and growth potential in an otherwise volatile landscape.
When restructuring or recovery through internal means is no longer viable, a company facing liquidation or insolvency has limited options:
At ConAlliance, we bring extensive expertise in advising on distressed M&A transactions, supporting clients from initial strategy and decision-making through to transaction execution and final deal closure.
ConAlliance provides clients with substantial advantages, including:
Our specialists employ a systematic and goal-oriented approach to identifying the “natural” investor. This not only ensures transaction speed and high closure probability but also effectively balances the seller’s goal of maximizing price with the buyer’s need to minimize warranty risk—essential in the often-challenging equilibrium of distressed M&A.
The success of a distressed M&A process largely depends on addressing financial insolvency swiftly and decisively. Unfortunately, distressed M&A is often seen as a last resort by shareholders, leading to delayed action that typically erodes the opportunity to preserve equity value before insolvency or creditor value during insolvency.
ConAlliance’s proactive, structured approach helps maximize value for all stakeholders, increasing the chances of a successful transaction even in challenging pre-insolvency and insolvency scenarios.
In a distressed sale, the seller primarily gains the opportunity for financial relief and operational reprieve. Losses can be mitigated, and costly restructuring efforts avoided, allowing management to refocus on the core business. However, distressed M&A transactions differ significantly from standard deals; they follow their own set of principles and present heightened risks. For example, the seller may not be freed from warranties and other liabilities, meaning they remain obligated until the entity achieves a turnaround or its financial position improves.
In cases involving corporate groups, intra-group transactions with the divested entity—especially profit-transfer agreements and cash pooling arrangements—can pose liability risks, particularly if the entity fails to achieve a turnaround or enters insolvency. In an asset deal, employees may object to the transfer of their employment, meaning inadequate employee notification can prolong objection periods, potentially decreasing transaction value or even nullifying it. Here, the seller has minimal recourse to shield against these risks. Risk coverage within the transaction agreement often lacks value, as purchasers frequently rely on thinly capitalized holding entities as acquisition vehicles.
For the seller, proactively identifying risks and developing innovative, durable solutions for risk mitigation is crucial. At ConAlliance, we leverage extensive experience in handling investor strategies and seller liabilities, making us the partner of choice for business leaders and insolvency administrators alike. We guide both groups throughout the entire sales or divestiture process, from a comprehensive sale or carve-out to risk identification, mitigation, negotiation, and transaction execution.
Our approach demonstrates a keen understanding of the complexities in distressed M&A, offering sellers a decisive advantage in protecting value while navigating challenging transactions.
Even under standard conditions, corporate transactions can be challenging, and these complexities are significantly heightened in times of financial distress, particularly during a liquidity crisis on the brink of insolvency. In such scenarios, the urgency and demand for resolution must not compromise critical factors such as reputation, brand image, and relationships with employees, customers, suppliers, and financial institutions. The need for a proficient and expedited transaction process is paramount. Stakeholders and management of distressed companies are often caught in a high-stakes balancing act: preserving the business, securing liquidity, protecting jobs, mitigating personal liability (e.g., exiting bank guarantee agreements), safeguarding personal assets, maintaining influence over the distressed entity, and avoiding further reputational harm or creditor claims.
At ConAlliance, we integrate the interests of all stakeholders—banks, management, employees, suppliers, and, where relevant, customers—into a streamlined distressed transaction process. The breadth of responsibilities and the intricate nature of transactions during crises demand expert planning and execution. Our M&A specialists undertake rigorous preliminary assessments, addressing critical questions to ensure alignment with stakeholders' needs. We ask: What risk mitigation and asset protection priorities do legacy shareholders have? Is there a preference for introducing a new shareholder, or is a full divestiture more appropriate? How can we ensure a discreet, seamless transaction to minimize disruptions and safeguard stakeholder confidence? What are the advantages and potential drawbacks of each option?
Additionally, we collaborate closely with clients to define the criteria for investor selection, identify suitable investors, and determine any entities that should be excluded from consideration. We address whether management should be afforded a Management Buyout (MBO) option, and we evaluate achievable valuation expectations and deal terms, whether introducing a new shareholder or selling shares entirely. We also assess the most strategic transaction structure—whether asset or share-based—to best meet the objectives at hand.
This meticulous approach allows us to deliver results that are not only efficient and effective but also carefully aligned with the complex, high-stakes demands of distressed situations, ensuring a level of control and clarity that sets us apart in the industry.
Transaction Concept: In scenarios where new investors are considered as potential shareholders, ConAlliance promptly develops a viable, mutually approved transaction concept by conducting a rigorous business analysis and engaging relevant stakeholders. Simultaneously, we offer alternative restructuring options, presenting additional value for our clients.
Sales Documentation: ConAlliance experts add significant value by preparing high-quality pre-marketing sales materials, including feasibility assessments, company snapshots, and information memoranda, alongside crafting a well-vetted shortlist of motivated, highly suitable investors in a short timeframe.
Due Diligence: During due diligence, ConAlliance diligently assesses the risk of impending insolvency, working closely with investors who have a buy-side mandate. In this transaction phase, we actively engage in takeover analysis, negotiations, and financing discussions with banks to support both the transaction and future operational funding. ConAlliance also prepares a robust business plan, laying the groundwork for negotiating key covenants.
Company Valuation: The greater the financial distress, the faster the erosion of company value—an accelerated process culminating in insolvency. ConAlliance’s objective is to secure an optimal compromise for our clients by structuring multi-period business projections and financial plans that are realistic and negotiable from a buyer’s perspective. Our valuations adhere to established, recognized industry methodologies to ensure relevance and accuracy.
Negotiation and Contract Structuring: ConAlliance not only leads price negotiations but also aligns the buyer’s expectations regarding guarantees and warranties, which in distressed situations can be as extensive as in ordinary times. Unlike healthy company acquisitions where warranties and purchase price maintain a balanced relationship, distressed transactions disrupt this balance significantly. ConAlliance ensures warranty fulfillment by securing insolvency-proof mechanisms—such as price retentions (e.g., seller loans) or third-party guarantees (e.g., bank guarantees)—to create a reliable, negotiable framework for both buyer and seller.
This approach showcases ConAlliance’s commitment to driving favorable outcomes in high-stakes transactions, with structured methodologies and strategic foresight guiding every phase of the pre-insolvency process.
If you're prepared to leverage our proprietary advisory expertise for the acquisition or sale of a distressed healthcare asset, we invite you to reach out.