In Part 1 of this series on M&A transactions in Southeast Asia involving distressed sellers/targets, we examined the preliminary key issues to be considered by prospective buyers and investors so as to arrive at a suitable transaction structure. As set out in Part 1, due consideration needs to be given to the benefits and drawbacks of the transaction subject matter, be it shares, assets, debt or a combination thereof. Laws relevant to insolvency and pre-insolvency also need to be considered as these have a significant bearing on the viability and outcome of a distressed M&A transaction.
In Part 2 of this series, we discuss in brief the three ‘Ps’ integral to the success of executing a distressed M&A transaction – the ‘Process’ of deal evaluation, the ‘Protection’ for a prospective buyer/investor and the ‘People’ required to carry out the transaction.
Process – deal evaluation process and strategy
Time is of the essence in a distressed M&A transaction.
There are often urgent liquidity needs to be met on the part of the seller/target especially in circumstances where the value of the target business and assets is rapidly deteriorating. There is frequently time pressure to commence and complete a deal before the seller/target runs out of cash and formal insolvency proceedings are initiated. The seller/target also needs to factor in the compressed timelines mandatorily imposed by creditors and/or the courts (for instance, in pre-insolvency proceedings).
As a result, the deal evaluation process must be well-calibrated and focused. In Part 1 of this series, we covered the typical structures utilised in a distressed acquisition which involves the acquisition of shares, assets, debt or a combination thereof.