Buying assets from SBA lender in prepackaged liquidation?

by a searcher from Harvard University - Harvard Business School

5 months ago

I’m currently operating an outdoor product manufacturer/brand that I acquired via a self funded search in###-###-#### Our industry is in a major downturn with a post-COVID inventory glut and softened consumer demand.  This has created some interesting buy opportunities that we are exploring. 

In one case, an owner-operator has a company in deep distress, with a non-bank SBA lender who I believe is likewise in trouble.  I’m interested in chatting with folks who have direct experience with buying/selling impaired assets in situations like this.  I’d like to make a cash offer that is at a discount to stated asset values but better than what I know the lender would net in auction.  Best to send the offer to the owner-operator or the lender?  Other tactical suggestions?  Thanks in Advance!

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searcher from Cornell University

Scott, we specialize in investing in deals like this. There are many nuanced financial/legal considerations to evaluate before coming up with a strategy and approach. To me, before approaching anyone, I'd want to think through the structuring as most of the execution of the deal will depend on this. This is a small smattering of the first questions that come to mind. Do you want to purchase the asset free and clear if there are other looming liabilities--if so, would want to do the acquisition in a bankruptcy Section 363 asset sale. Is there less than $7.5m of funded debt--if so, definitely want to do a Subchapter V filing. Is the lender over or under collateralized based on the market value of the asssets--one or the other can drive substantially differing outcomes depending on path. Do you want to enter through an acquisition of the paper or through a purchase of the owner entity--there a different cost/benefits to both approaches. etc, etc. Once there is a clearer picture of the structure, can approach the seller and the lender with more confidence.

Distressed deals are more complex than a typical LBO/searcher acquisition primarily due to the legal weapons and defenses that are required to win when push comes to shove. Some call it "3D Chess", per the industry bible "Distressed Debt Analysis" by Moyer. However, if you have the right team asking the right questions, it's possible to score massive wins. Shoot me a message if you want to chat about it.

5 months ago | like reply | 0 likes

searcher from Harvard University - Harvard Business School

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5 months ago | like reply | 0 likes

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