“That’s the good news for potential buyers of companies,” said Swanstrom, who is Co-Chair of Locke Lord’s Energy Practice Group. “The challenge for buyers, as always in these situations, is deciphering whether they are buying a ‘falling knife,’ or instead are buying quality companies or assets at attractive prices, with the opportunity to generate a significant upside.”
Adding to that challenge is the fact that downturns tend to result in more litigation risk, more employment-related claims and more counterparty credit-risk. Careful due diligence by buyers can help mitigate that risk, as can strong indemnities and – increasingly – rep and warranty insurance products, Swanstrom added.
McTygue, Managing Partner of the Firm’s Boston office, noted that many private equity clients benefit from limited, strategic buying opportunities, “and we expect that many more will do so in the second half of the year.”
“But those opportunities are only available to those that have the balance sheet flexibility to take advantage of them,” McTygue said. “They will also need patience, as this downturn is shaping up to be a long one – longer still if the nuclear treaty with Iran is ratified and they begin contributing to the global industry oversupply.”
A Q&A Series package on “Financial Distress in the Energy Sector” – pulled from the Boston event on Thursday -- includes the following features from Swanstrom and McTygue, as well as from Karl Fryzel, Co-Chair of Locke Lord’s Tax Department, and Bankruptcy, Restructuring & Insolvency Partners Rick Kuebel and Jonathan Young.
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