When a business faces financial distress, the prospect of a bankruptcy sale can seem daunting. For many owners who have poured years of effort and resources into building their companies, the idea of selling through a highly structured process like a 363 sale, an Article 9 auction, or an assignment for the benefit of creditors might feel like a last resort. However, with the right strategy and guidance, these processes can preserve value and offer a path to maximize returns, ensuring that the legacy of your hard work is not lost.
A 363 sale, named after Section 363 of the U.S. Bankruptcy Code, is a mechanism that allows a debtor to sell assets quickly and efficiently, free of liens and other encumbrances, under the oversight of a bankruptcy court. Unlike traditional liquidation, which can be chaotic and value-destructive, a 363 sale provides a structured environment where assets can be sold through a competitive bidding process. This structure often results in higher proceeds, benefiting the debtor and creditors.
The key to a successful 363 sale lies in careful planning and execution. At Harney Capital, we understand the intricacies of this process and work closely with business owners to navigate the complexities and minimize the risks involved.
Why Consider a 363 Sale?
For privately held, middle-market company owners, the idea of selling under financial distress may seem intimidating and causes a massive amount of stress on the operator. However, a 363 sale offers several advantages:
- Controlled Environment: Unlike a forced liquidation, a 363 sale allows you to retain more control over the process. You can set the terms of the sale, including designating a “stalking horse” bidder to put a floor price, which helps protect against lowball offers.
- Maximized Value: The competitive bidding process in a 363 sale often results in higher prices than might be achieved through other sale processes, as it encourages multiple bidders to participate.
- Clean Transfer of Assets: Assets sold in a 363 sale are typically free and clear of liens and claims, which makes them more attractive to buyers and can lead to better offers.
While the benefits of a 363 sale are clear, it’s essential to understand and mitigate the risks involved:
- If you’ve personally guaranteed debts, a 363 sale might not entirely eliminate your obligations. It’s crucial to address these guarantees early in the process to protect your assets.
- The transparency required in a bankruptcy sale can sometimes deter potential buyers who prefer confidentiality. However, a well-managed process can help mitigate this risk by maintaining clear communication and setting realistic expectations with all parties involved.
- A poorly executed sale can result in lower-than-expected proceeds or even the sale reversal if the court finds the process was not conducted in good faith. This is why working with an experienced investment banking advisory firm like Harney Capital is essential.
To ensure the highest value is extracted from the sale process, here are some sophisticated points on how to best run a 363 auction:
- Refresh and finalize all marketing materials, including Confidential Information Memos (CIMs), teasers, and supporting documents. These materials should highlight your business’s value drivers and be tailored to attract serious bidders.
- Develop a comprehensive buyer list, prioritizing those most likely to see strategic value in your assets. Engage with potential “stalking horse” bidders early to set a strong baseline for the auction.
- Use your network and affiliations to generate interest. At Harney Capital, we leverage our strategic affiliation with Harney Partners, drawing on decades of restructuring and turnaround experience to bring additional credibility and reach to the sale process.
- Ensure the auction process is transparent and well-documented. This will satisfy court requirements and build trust with bidders, increasing the likelihood of competitive bidding.
- Be prepared to negotiate with potential buyers, particularly the stalking horse bidder, to secure favorable terms to drive higher bids during the auction.
At Harney Capital, we strive to empower business owners with the tools and expertise to navigate challenging situations like a 363 sale. By approaching the process strategically and with the proper support, you can maximize the value of your business, protect your interests, and ensure that your years of hard work are worthwhile.
If you’re considering a 363 sale or want to explore your options, our team at Harney Capital is here to help. We provide the sophisticated financial advisory services that middle-market companies need to succeed, even in the most challenging circumstances. Contact us today.
