Distressed M&A: Why selling a company in crisis can be an opportunity
Although the word “crisis” is usually associated with value destruction, in the M&A world there are investors who specialise in complex situations. A well-structured sale can avoid liquidation, preserve jobs and generate returns for shareholders. The key is to identify the hidden value and present it correctly.
Key strategies to maximise value in a distressed sale
To maximise value in a crisis sale there are three objectives: buy time, reduce uncertainty and create real competition between buyers.
- Immediate financial and operational diagnosis: before starting the process, it is essential to understand which areas can be stabilised and which assets have strategic value. This helps define whether the sale will be total, partial, or by productive units.
- Restructuring before the sale: renegotiating debt, optimising working capital and adjusting the cost base can improve the buyer’s perception. You can expand on this approach in our article on "what banks expect to refinance debt".
- Transparency and clear documentation: in distressed contexts, buyers value speed and clarity. A complete information pack (financials, contracts, litigation, assets) reduces perceived risk and accelerates the process. Professionalise the information: a clean data room and seller due diligence that show, using simple metrics, why the business is viable (order book, customer concentration, margins by line, normalised working-capital needs and a 100-day operating plan).
- Stabilise cash with a 13-week cashflow plan and, if necessary, bridge financing: avoid “fire sales”.
- Define precisely what is being sold (the profitable unit or a carve-out) and ensure continuity: identify critical contracts (customers, suppliers, leases, IT), licences and key personnel, and prepare in advance the authorisations or novations required.
- Design a short, competitive process with clear rules and a timetable: equal access to information for all, a minimum required offer and, where appropriate, a “stalking horse” bid that sets a floor.
- Structure price and risk properly: earn-out (part of the price linked to recovery milestones), escrows and limited warranties, selective assumption of liabilities and, where it adds value, transitional services by the seller (TSA) for an orderly handover.
- Manage stakeholders (banking pool, Tax Authorities/Social Security, employees and unions) and the market message: a clear continuity narrative preserves the going concern and supports multiples. A specialised adviser can coordinate these fronts effectively and avoid unnecessary discounts.
Factors that influence the value of a company in crisis
- Available liquidity: even in distress, a company with cash can negotiate sale terms better and offer greater flexibility to the buyer.
- Strategic assets: patents, brands, ongoing contracts or a solid customer portfolio can represent growth opportunities for the buyer.
- Non-core assets available for disposal: identifying assets that can be monetised without materially affecting the core business. Ability to release assets by outsourcing processes.
- Management team: continuity provides operational stability and reduces perceived risk. In many cases, it is a decisive factor to close the transaction.
- Sector and positioning: companies in sectors with strong demand or high barriers to entry tend to attract more interest, even in distress.
Who buys companies in crisis?
- Turnaround-focused private equity funds: they look for assets with recovery potential to apply operational and financial improvements.
- Strategic competitors: they may acquire distressed companies to gain market share, access new channels or remove competition.
- Family offices: they tend to have greater flexibility and a long-term view, allowing them to invest in special situations.
- Debt funds: they structure transactions using mechanisms such as deferred payment, leveraging the business’s own cash generation to finance the acquisition.
Typical clauses in distressed transactions
- Earn-out: this clause allows part of the sale price to be conditional upon meeting certain future targets, such as EBITDA, revenues or operating milestones. It is particularly useful when the buyer perceives risk in the continuity of the business, but the seller is confident in its recovery. The earn-out aligns incentives: the seller has reasons to support the transition, and the buyer reduces the initial outlay while tying payments to actual performance.
- Deferred payment: in contexts of limited liquidity, the buyer may propose instalment payments funded by the acquired business’s own cash generation. This structure enables transactions that would otherwise be unworkable due to a lack of immediate capital. It can also include interest, security or acceleration conditions if certain financial milestones are met. In distressed transactions, deferred payment is a key tool to facilitate the deal without compromising the buyer’s viability.
- Protection against undisclosed liabilities: where the company is in crisis or in insolvency proceedings, the buyer needs legal protections against undisclosed contingencies: tax debts, employment claims, contracts with abusive clauses, etc. These protections can be structured through representations and warranties, indemnities, price retentions or specific insurance. In an insolvency context, the buyer may also benefit from legal mechanisms that limit its liability for prior liabilities, provided the transaction is well structured and court-authorised.
In certain cases, where the financial situation requires legal protection vis-à-vis creditors, the sale can be carried out within insolvency proceedings. This framework allows the transaction to be structured with safeguards for both parties.
The role of the management team
- Operational continuity: buyers value the management team staying post-transaction, as it provides internal knowledge and stability.
- Confidence in execution: a competent team conveys confidence in the future viability of the business.
Common mistakes when selling a company in crisis
- Confusing urgency with haste: selling quickly does not mean selling badly. Preparation remains key.
- Not making prior adjustments: skipping operational or financial restructuring can reduce the value perceived by the buyer.
- Lack of specialised advice: without distressed M&A experts, negotiation leverage and strategic perspective are lost.
- Ignoring reputational impact: poorly managed communication can scare buyers and create uncertainty among employees and suppliers.
Checklist to prepare a distressed sale
- Financial and operational diagnosis: understanding the real situation enables an effective action plan.
- Prior restructuring: renegotiating debt, optimising costs and reorganising teams improves the buyer’s perception.
- Complete document pack: financial statements, key contracts, employment situation and legal contingencies must be clear and up to date.
- Identification of potential buyers: specialised funds, competitors or family offices depending on the business profile.
- Definition of key clauses: earn-out, deferred payments, legal protections and management-retention conditions.
- Communication strategy: internal and external, aimed at conveying control, vision and continuity.
- Legal and financial advice: essential to structure the transaction with safeguards and maximise value.
Practical example: sale of a company with debt and operational issues: an industrial company with €8m of debt and negative EBITDA was restructured in 6 months: headcount reduction, disposal of non-core assets and debt renegotiation. It was sold to a specialised fund with an earn-out clause and deferred payment, preserving 80% of jobs and avoiding liquidation. The buyer took over operational management and relaunched the brand in new markets.
Conclusion: selling in crisis is not giving up; it is restructuring with vision. Selling a company in crisis requires speed, strategy and market knowledge. With the right approach, it is possible to preserve value, protect jobs and ensure business continuity. At Maraz Corporate Finance we support companies in complex situations so that every decision becomes an opportunity.
Vicente Bernabé López - Analyst
Maraz Corporate Finance
