Distressed Buyouts- How to Facilitate a Win-Win in a Losing Situation

Many businesses are suffering through the current pandemic as well as the related and unrelated unstable economic conditions. At Rogoway Law we are witness to many companies tightening belts, reducing their workforce, and coming up with ways to continue through these challenging circumstances.

For companies, it’s important to know when to cut losses. It’s never an easy decision but it could make the difference between being able to succeed in a successor company or a new endeavor in lieu of losing it all. Budgeting plays a crucial role in understanding the short term and long-term runway available but almost always forecasting is not handled conservatively enough in the business context (in part because of external pressures and in part because of the many variables at play in predicting financial and performative outcomes).

This means companies can often find themselves at an impasse or in a situation where they can no longer progress and have no finances to further their endeavors. This is a bind and a distressed position where the company will have little to no leverage for either getting acquired or seeking emergency financing. The best way, on the company side, is to have some foresight so as to have the ability to start seeking acquirors or investors before it’s too late. The not-entirely-distressed buyout may allow for some perks for founders to get involved in the post-acquisition company and may allow for some better terms before hitting rock bottom, which would result in a transaction of absolute desperation. At Rogoway Law we can help companies assess where they are and what next steps they can take to preserve some leverage in distressed situations.

Likewise, at Rogoway Law, we often work with acquirors to help mitigate risks and loss in leveraging a distressed buyout and in choosing the right transaction that can be meaningful after acquisition. It often involves a smart and efficient diligence process and creative drafting and structuring.

The distressed buyout can be a win-win for the acquiror and the seller since the seller can no longer function but the acquiror can, presumably, salvage a business that is already underway or gain important staff or assets of the business all while offering a less than total loss for the company.

We know times are challenging and we know there are ways for parties to come together to reduce losses and create new opportunity. If you would like pursue a distressed buyout, please contact the corporate transactional attorneys a Rogoway Law; we are happy to be of help in creating a win-win in a losing situation.

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