The winter conference of the Alliance of M&A Advisors finished today; it was well attended and I had a chance to catch-up with a some friends and industry participants.
The session on creative deal structures was interesting and thought provoking …most of the discussion was focused on distressed and tough situations. Here are a few bullets that I want to share based on the panel’s views –
1. A second wave of bankruptcies is likely in 2010 by companies needing to de-lever (with many companies having sales of 40-60%).
2. Interesting enough, the perspective of banks has moved from getting out of bad deals to one of restructuring tough loans to avoid further write-offs.
3. Banks in problem deals are looking for more equity in those deals (no surprise), mezzanine investors are looking to preserve value, customers are seeking continuity of supply and willing to invest, and employees are being flexible in compensation arrangements.
4. It is difficult to value investments by PEGs in distressed deals because of the back-loaded structure of deals with cash and equity earnouts. It was suggested that the approach to evaluating potential deals is to look at the likely value of positions 3-5 yrs out if the deal works.
5. Bankruptcy is too expense for many …there is an increase in out of court deals: (1) assignment for the benefit of creditors and (2) friendly foreclosures. Both of these tend to washout unsecured debt. Prepackaged bankruptcies are moving very quickly; now measured in weeks vs. months.
6. Lender liability seems to be less of an issue given the past five years of litigation and precedences set.