Initiating an M&A process early on, at the onset of a crisis, can significantly increase the process’s chances of success and the sale prices achieved. Professional stakeholder management and consistent liquidity management maximize the time available and the opportunities presented by a structured bidding process.
Together, these activities can help maintain solvency and a positive going-concern prognosis in critical situations. This, in turn, opens up additional options for action through alternative restructuring strategies.
In the current challenging economic environment, we are seeing a trend in distressed M&A transactions where the companies up for sale find themselves in precarious situations. More often than not, these companies are already nearing insolvency due to the advanced stage of their crisis. Distressed sales with low proceeds must sometimes be accepted.
To capitalize on opportunities to overcome the crisis and preserve shareholders’ assets, an M&A process must be initiated at an early stage.
Especially during a crisis, it is important for shareholders and management to create and maintain further options for action . Professional stakeholder management with financing partners and consistent liquidity management can be crucial in buying time for the M&A process. This often makes it possible to avoid insolvency and, if necessary, pursue additional alternative restructuring approaches alongside the M&A process.
Initiate Distressed M&A Early
In the event of a crisis, selling the company or parts of it can be a way to restructure the business. By initiating the distressed M&A process before the crisis affecting the company—or parts of it—escalates, valuable time is gained—in the truest sense of the word. This is because a structured bidding process—one that yields the highest sale prices—takes time. This is especially true when the focus is on a potential sale to a strategic investor. The parallel pursuit of alternative strategic interests of potential investors, such as
• a takeover of the business operations, or
• business units, or
• assets such as real estate or production sites,
significantly increases the process’s chances of success. And, based on experience, leads to significantly higher sale prices.
Stakeholder Management: A Key Factor in the M&A Process
Professional stakeholder management is essential for conducting a successful M&A process during a crisis. In particular, financing partners and creditors—as well as shareholders and, where applicable, employee representatives—must be involved at an early stage. Transparent communication and consistent adherence to agreements can build trust and create room for negotiation. Shareholders and creditors are also shown the opportunities and risks the M&A process presents for them compared to alternative restructuring approaches. And which M&A strategy preserves the most assets. In this way, the willingness of financing partners to support the M&A process by continuing to finance the company during the crisis can also be increased. And by maintaining financing, time can be gained for the structured bidding process.
Liquidity Management: A Prerequisite for the M&A Process
Consistent liquidity management is also a prerequisite for the M&A process during a crisis.
In this context,
• the company’s financial resources must be precisely planned and managed.
• A detailed analysis of the current financial situation and
• appropriate planning for future liquidity are essential.
To avoid insolvency and to successfully complete an M&A process, solvency must always be ensured. The cause of insolvency due to excessive debt must also be ruled out. Intensive liquidity management by experienced experts, initiated early in the crisis, combined with an already advanced M&A process—as evidenced by initial offers on the table—can be decisive in achieving a positive going-concern prognosis. This, in turn, creates the conditions for all parties involved in the M&A process to bring it to a successful conclusion with greater legal certainty.
Conclusion
To enable successful implementation and overcome the crisis, collaboration with a distressed M&A advisor who has relevant experience is essential. Starting early opens up options for action for both the advisor and the entrepreneur and buys valuable time. This leads to higher sale prices and greater preservation of assets.
