For every management team, it is a very hard task to manage acquisitions or mergers. But when it comes to deals with distressed companies this can make the most knowledgeable manager and teams go crazy. Processes that are time limited and very few potential buyers are just the tip of the iceberg when companies commit to a merger or a takeover of a distressed company.
So what does it take to succeed in a merger or a takeover with a company in a situation of distress? Here are some tips that can be useful for managers and employees who are just starting to understand the world of mergers and acquisitions
DUE DILIGENCE IS THE TIP OF EVERYTHING
In order to have a very good transition and a very good restructuring process, there has to be a good preparation in all the areas involved (which is most of the company) and a plan that can foresee problems and solutions and that takes a good look at all the synergies. Potential buyers have to invest money and time in order to have a very good scope of the process so they can understand all the information and understand how they can be part of the transaction.
After this comes the solution part. The buyer should take a really good look at all the liquidity information, the causes and problems that took the company to such a distress position, the description of all the markets and the market trends that the company followed and any problems in high rankings that the company had. This process has to also have “Material Adverse Change” (MAC) and “Change of Control” (COC) clauses.
As in any business transaction, the buyers have to know who their partners are and their financial status. In the case of distressed companies, the partners are most of the times the banks. The banks most of the times look at the offer not only from the point of view of the size of the offer as if, but also at many other factors that make the offer interesting. The banks look at the buying price and if it is flexible to include earnings and any other elements such as Profit Participating Loans (PPLs). This may sound as if the banks do not pay attention to jobs and facilities, but the reality is that for them it is more important the organization’s future success. Lenders will be expecting a good business plan and a very reachable strategy in order to make their investments successful in the short term.
THE MERGER IS DIFFERENT
After dealing with the banks, the INTEGRATION AND RESTRUCTURING really starts. Here, the purchase has been completed and the “first 100 days” are running. The company must be stabilized and taken almost to a halt until all the measures that compromise the restructuring strategies have been met. Then, if some areas are not directly affected by the merger or takeover, or the impact on their work is minimum, they can start being included in the merger process and they can be merged with their counterparts from the other company or process. People should remember that the purchasing process to acquire distressed companies differs from those mergers between stable and healthy organizations. In normal mergers companies act as equals, but in distressed mergers, it is essentially a transaction designed by the buyer so the company that is buying will allocate managers of their own, yet not forgetting about the key players from the previous corporation.
EXPERIENCE: THE BEST PARTNER
After the merger is completed with distressed company issues such as money and problems that have to do with the operation of the company are extremely important for the process. Most of the companies don’t have the resources, time or expertise to handle this big load of work. Hiring a CRO (chief restructuring officer) or a CIO (chief integration officer) is the best idea as they can lead an interdisciplinary team that can tackle the problems and make decisions in order to stabilize the areas that are most affected by the merger and provide all the interested parties the information they need to be sure about the company.
SOME PIECE OF ADVICE
To end the article, it is very important to remember that work starts when the signing process is on the way and that is the very special moment to start integration; the show must go on and the daily business must keep working no matter the odds; “Follow the money” so execution can be done according to planning; Make things as quick as possible such as who is going to be in the 4 top positions in the company and select staff according to their experience within the distressed company; focus on the years to come for the new organization and try to avoid the “old organization” stigma among employees and shareholders
Be sure to also read this post about bankruptcy courts and how they differ from other courts
* Featured Image courtesy of Pixabay at Pexels.com