Home Services Industries Our Team Transactions Market Intelligence News Search Contact Us Careers M&A/Financing Private Equity

Advisory Services Capital Advisory Services Special Situations Distressed M&A Global Infrastructure & Projects

Distressed M&A
Characteristics of a Special Situations Candidate
Financial distress is typically an unanticipated event. Businesses transitioning along a continuum of financial health from going concern to distressed, often exhibits one or more of the following characteristics. Over-leveraged balance sheet Covenant and/or payment defaults Lack of internal controls Loss of a major customer, supplier, or key employee Management seeking bridge financing for quick fixes Discovery of fraud Product failure Obsolete business model Cyclical downturn Volatility in raw material and energy costs External shock to economy

Distressed M&A and Healthy M&A

Because distressed M&A is specialized and follows a distinct process, the distressed M&A adviser must be uniquely qualified to fully understand the multi-faceted restructuring dynamics of a distressed M&A deal. Referenced below are the key differences between distressed M&A and healthy M&A:

Accelerated Sale Process

Given the diminishing value of a business under distress, the specialist advisor must be skilled at quickly assessing and articulating the potential benefits and helping to minimize the perceived risks of acquiring a distressed company either in-court or out-of-court. For in-court transactions, there is a need to adhere to a transparent process. Sale procedures must be well documented and communicated to a wide and diverse range of parties-in-interest.

Valuation
Distressed company valuation requires modifications to conventional healthy M&A processes. A successful distressed adviser has the ability to apply unique subjective and analytical factors in determining the valuation of various distressed assets including tangible and intangible assets such as intellectual property.

Multiple Stakeholders
Multiple constituents frequently have conflicting agendas that require strong leadership, negotiation skills and constant communication between all parties in order to minimize hostility, gain consensus, and keep the transaction on course. The skilled M&A adviser gains the support from, and credibility with, creditors for assessing the need to explore all exit strategies; reorganization, recapitalization, sales of assets and the corresponding tax, legal, environmental, board and other ramifications.

Response Time
In distressed M&A, there are frequently trade offs between time and value. The ability to mobilize and leverage other professional resources quickly and negotiate skillfully under abbreviated time frames is crucial. Gaining more time requires stabilizing the business and preserving liquidity by effectively accessing global buyers and alternative capital sources.

Execution
To successfully execute a distressed M&A that results in enhancing value, the skilled adviser must: Have access to, and an in-depth understanding of, the valuation drivers of the purchaser audience, including financial, strategic, domestic and international buyers, Negotiate with multiple constituents regarding different agendas who have influence over the transactions outcome, Have a thorough understanding of acceptable deal terms in the applicable court venue, Mobilize resources quickly and negotiate skillfully in the midst of turmoil under abbreviated time frames.

KPMG Site Selector Online Privacy Statement legal statement Business Continuity Plan Site Map 2012 KPMG Corporate Finance LLC, a Delaware limited liability company, is a member of FINRA and SIPC and is registered as a broker dealer with the SEC. KPMG Corporate Finance LLC is also registered as a municipal advisor with the SEC and MSRB. KPMG Corporate Finance LLC is a subsidiary of KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.