Bankrupt companies carry risks, rewards for buyers - Kansas City Business Journal:

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It’s the opportunity to acquire an insolvent businessz or its assets for abargain price. And like every decisionj that offers risksand rewards, it firsgt should be reviewed with a professional. Craig a corporate mergers-and-acquisitions and securities lawyetrat , said the topic of acquiring bankrupt businessea is popular. “You’re hearing a lot of buzz about said Evans, though he added that most acquisitions stilo occur outside of a bankruptcy “In the past, it was a pretty special circumstance that would cause you to look at a transactiomn and think that it’s better to do it in a bankruptc court than it is to just do it straighty up,” Evans said.
“But the belierf is that there’s going to be a big acceleration in that type of The obvious reason to buy a company out of bankruptcu is to getit inexpensively. Art a partner at who specializesin M&AA work, said there is already a flurry of activitg among buyers trying to snap up bankruptf ethanol companies. “Three years ago, it was like a gold rush of peopld trying to get to what was then considered to be the gold ethanol production,” Fillmore said. He cited an examples of a company that built an ethanol planfin 2006; the cost of each gallon of ethanol produced a year was $2.25.
Threes years later, Fillmore said that may succeed in buyinbg four or five plants from bankrupt ethanokl producer VeraSun for 50 centsa gallon. “You can see the effec of the bankruptcy — and the economy,” Fillmore “Basically, 75 percent of the value was lost fromthe seller’s standpoint. But from the buyer’a standpoint, it was a gold mine.” Besidesw price, Pat Trysla, managinb director at , said that when a buyere gets assets through abankruptcgy proceeding, it takes them free and clear of unsecurede creditors’ claims. (Different rules apply to secured creditors, who have more protectionm in abankruptcy case.
) However, there are risks to acquiring an insolventf company. Evans said that a buyer must use due diligence and understancd exactly what itis — and isn’t — getting. Buyers are purchasingh the assets “as is, where is.” “I was looking at one of thesew purchase agreements severalmonths ago, and it was maybe seven or eight pages long,” Evans said. “In a normalp case, you’d be looking at a 30- or 40-pages document. And the reason is that the sellerr isn’t going to be around after the sale to provide you the protections that you normally wouls negotiate intoyour agreement.
” There’s also a risk in makint an early bid for a bankrupt “Being the first bidder can be tricky,” Trysl a said. He said the first partu to make a bid is calledthe “stalking Its bid sets the minimumj price, but other parties may come in and offefr more money. Courts favor a competitive biddin g process so that the unsecured creditors will receive as much money on theie claimsas possible, he Even though in some cases a stalking horss bidder may recoup some of its out-of-pocket costs, an unsuccessfukl attempt ultimately will be a waste of time and effort.
“They have to feel pretthy goodthat they’re going to be the top biddeer at the end of the Evans said. “You have to decide whethere you really want to go through that procesas to get the comfort that when you buythe you’re not going to have claimws against you. Sometimes it makes sense, and sometimes it doesn’t.”