Acquiring Distressed and Bankrupt Concerns

Abstract

This paper discusses acquisitions of distressed and bankrupt concerns. It starts with a description of the different types of targets (healthy, distressed, bankrupt) and provides insightful comparisons of deal and firm characteristics using the above classification, while recognizing the importance of economic cycles and how they may affect distressed and bankrupt acquisition levels. The paper then proceeds to compare both short-run and long-run performance of the companies involved in deals with the different types of targets and discusses special processes used such as bankruptcy reorganization and auctions, their relation to ‘fire sale’ discounts, and bid structure. The issue of post-acquisition divestitures is also analyzed. The paper ends with a timely discussion of the financial services industry that has recently been in distress and as such provides important insights of distressed merger activity.

Keywords: distressed acquisitions, auctions, bankruptcy reorganization, fire-sales, merger performance, economic cycle, post-acquisition divestitures

JEL Classification: G33, G34