Five Focus Areas for Buyers When Purchasing Assets from Bankruptcy
The global pandemic has wreaked havoc on businesses from a wide variety of industries (e.g., life sciences, industrial products, consumer products, services.) Although adversely impacting many companies, it also presents an opportunity for interested buyers to purchase assets from bankrupt companies through the Section 363 sale process under the U.S. bankruptcy code.
However, these transactions also come with many risks and time constraints. Buyers should evaluate these key considerations that are often common issues with asset purchases from bankruptcy sales. Unless proactively addressed, these issues could reduce deal synergies and/or decrease the value of the business being acquired.
Shortened sign-to-close window
The timeline between declaring bankruptcy, selling assets and liquidating the company in most instances is very short. This, in turn, creates a shortened integration planning or transitionary period to stand up and operate the business, which results in an extremely short timeframe to do the following:
- Determine TSA support needs and post-close support
- Review and novate contracts (vendor and customer)
- Establish legal entities to receive assets and identify the critical path to Day 1
Unidentified Reverse Transition Services Agreement (RTSA)
Liquidating companies/sellers commonly require a buyer to provide access to conveying employees and/or systems to wind down operations. These unplanned RTSAs can add potential execution risks for the buyer due to:
- Capacity issues in providing these services for an extended period
- Potential employee turnover of RTSA resources
- Challenges with conveying system management