With continued headwinds that include rising interest rates, high inflation and the general sentiment of a recission that is always right around the corner, the outlook for merger and acquisition activity generally – and for the retail industry in particular – seems likely to include more transactions with distressed targets than in recent years. Here is a brief summary of some unique considerations for deals involving distressed targets to help you brush up your playbook for potential transactions as the U.S. and world continue to navigate a challenging macroeconomic environment:
- Transaction Structure – Given the general ability to pick-and-choose what assets a purchaser wants to acquire, and what liabilities a seller is willing to assume, distressed transactions frequently are structured as asset sales rather than equity sales or mergers. The benefits to a buyer of being able to select the assets it purchases and the liabilities it assumes, and tax benefits of the step-up in basis that the buyer can receive by purchasing assets, typically outweigh the burden of additional third-party consents associated with asset deals. It is critical for buyers in an asset deal to ensure that the purchase agreement is clear on the assets being purchased to ensure that the scope includes everything the buyer intends to purchase and the liabilities that it is (and is not) assuming to avoid taking on unintended obligations from a seller.