Consulting Services

BEST Solutions: Business empowerment and strategic turnaround

Debt Elimination

RISE Solutions: Commercial debt settlement & restructuring

Acquisitions and Add-ons at Liquidated Asset Cost

Article | April 12, 2019

Learn how Second Wind reorganizations can provide a source of add-on opportunities at the attractive cost of liquidated asset valuation.

A man building a tower out of wooden blocks

As a private equity group or strategic intermediary, you are looking for attractive acquisition and add-on opportunities.

In this article, you will learn about a source of target opportunities and value of which you may not be aware. Furthermore, you will learn why these opportunities are uniquebecause target acquisitions are available at the attractive cost of liquidated asset valuation.

“I think it’s a huge opportunity. I really do.”

Mike Kendall, Kendall Capital Group

How Reorganizations are a Source of Opportunity

The distressed space is often thought of as a minefield of sunken costs, risk and futilityand rightly so. A host of complexities and inefficiencies involving a lengthy debt schedule are often prohibitive to pursuing acquisitions. More often than not, the value of the distressed enterprise is lost to liquidation.

However, a growing number of distressed or insolvent businesses are pursuing the more rational path of “transactional reorganization.” This alternative is one that preserves core enterprise value while divorcing all subordinate debt from operations. The result is a pristine, debt-free new entityand a unique opportunity for purchasers.

Under Article 9 of the Uniform Commercial Code, business assets may be sold privately into a purchasing entity in order to satisfy the appraised valuation of the first position creditor’s collateral. But unlike with formal liquidation, the result of this strategic asset sale is that enterprise value and the full continuity of operations are preserved and passed through to the purchasing entity. This represents an opportunity for any investor.

“I was really surprised to learn that this process has something in it for everybody—including the second level of lien holders that actually don’t get paid on their liens—but because they’re going to preserve the ongoing business and it will be a new entity probably with better management, they can keep the customer.”    

Greg Carpenter, M&A Business Advisor

Pristine Entities at Liquidated Asset Cost

Article 9 of the UCC provides the first position creditor a means to liquidate their collateral in a private sale while eliminating all subordinate liens and obligations. Subordinate creditors’ liens are removed through Article 9 when total asset valuation is outweighed by the obligation to the first position. This benefits the first position creditor and facilitates their ability to transact on the collateral with assurance to purchasers that assets transfer free of all encumbrances.

Through the strategic Article 9 asset sale, a purchaser for the assets is identified, and a new purchasing entity is selected or created for the transaction. This simplified short sale of business assets requires only the consent of the first position secured creditor.

Upon completion of the 10-day notice period to subordinate creditors, the assets transfer free and clear to the buyer. At the same time, enterprise value and continuity of operations pass through to the purchasing entity acquiring the assets.

“We recently closed a deal where the owner had to take out a personal loan to clear the assets, so we could transfer them to the buyer. With (an Article 9 reorganization) we would have been able to close it quicker, and a lot more easily.”

Scott Mashuda, River’s Edge Alliance Group

“I recognized the value immediately. It not only brings a business owner out of a bad situation, but everybody wins—that’s the best model.”

Troy Tucker, Blue Sky Business Resources / Committee Chair, M&A Source

A Flow of Add-on Opportunities at Attractive Entry Costs

There are three scenarios in which your PEG or even M&A model can benefit from strategic, Article 9 reorganizations.

Scenario 1: Distressed to Pristine Prior to Acquisition

You have a distressed target acquisition where the outstanding debt outweighs the value of the assets. You bring that target opportunity to Second Wind Consultants who willat no cost to youreorganize the target prior to your acquisition and deliver you back a pristine, debt-free enterprise in a matter of weeks. There is no need for ABCs, global settlements or 363 sales. Reorganizations are streamlined, requiring negotiation with only the first position creditor, and generally are completed in 45-60 days.

Scenario 2: Enterprise Value at Liquidated Asset Valuation

When core business value is preserved through an Article 9 reorganization, purchasing entities become available as target opportunities to PEGs at the attractive entry cost of liquidated asset valuation. By forming a strategic alliance with Second Wind Consultants, PEGs will be alerted to add-on opportunities that fit their criteria in real-time.

Scenario 3: Strategic Buy-side Alliance

Intermediaries can form a strategic alliance with Second Wind Consultants to line up purchasers of potential add-ons in order to transact on newly reorganized enterprises, creating a competitive advantage for themselves and value for their clients.

Find out more about how a strategic alliance with Second Wind Consultants can offer you a stream of reorganized opportunities at attractive entry points.

Start an Alliance

Find out how a no-cost strategic alliance can add value to your model.

  • Start an Alliance

    Find out how a no-cost strategic alliance can add value to your model.

    • Your information is confidential and will not be shared with outside parties, see our Privacy Policy. By submitting this form you agree to our Terms of Service.

    Sending Message...

    Message Sent

    A representative will be in touch
    with you shortly.