Distressed M&A: Considerations Amid a Pandemic

As we near the end of the quarter, there is widespread concern that more companies will find themselves in varying stages of distress. These situations may force sales for some while also presenting a chance to pursue opportunistic purchases for others.

For those who find themselves considering buying or selling, it’s important for those on both sides of the transactions to keep in mind some of the key legal issues often associated with distressed situations, including successor liability, fraudulent transfers, and fiduciary duties.

Additionally, there are many transaction structures to consider and evaluate—some more common than others. For speed and efficiency, many are considering out-of-court transactions. Some are staying the course with a more conventional approach including Chapter 11 reorganization or 363 sales.

As businesses look to buying or selling as a result of distressed conditions, some additional key considerations should be kept in mind:

• As we continue to progress through this era of the coronavirus (COVID-19) pandemic, priorities for directors may shift from where they were previously, including in consideration of the exhaustion of PPP funds.
• In the current environment, parties will be looking to complete sales quickly and at a low cost as funds may not be available to fund a longer, more expensive process.
• There will be a growing interest in out-of-court transactions and while many may prefer this route, it is not without certain risks.
• There will be a premium on speed during 363 sale processes, which could also result in changes in where cases are filed.
• Debtors will be focused on wrapping up cases quickly through a plan process that provides releases.

This presentation was part of our Morgan Lewis M&A Academy. We invite you to subscribe to Morgan Lewis publications to receive updates on trends, legal developments, and other relevant areas.