Distressed M&A refers to acquisition transactions involving companies in financial difficulty — experiencing cash flow stress, covenant breaches, judicial reorganisation, liquidation proceedings or restructuring processes. These transactions occur under time pressure and information constraints that significantly alter the normal M&A dynamic: the seller is often forced, the process is compressed, and the buyer faces elevated uncertainty and legal complexity.

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Common distressed M&A structures include: pre-pack insolvency (a sale negotiated before formal insolvency filing, executed immediately at filing), in-court sale (sale of assets or business under judicial supervision), debt-for-equity swap (creditors converting their claims into equity), and distressed secondary (acquisition of debt at a discount with the intention of converting to equity or forcing a consensual restructuring).

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Due diligence in distressed situations is necessarily compressed (days or weeks rather than months) and focuses on the most material risks: cash position and burn rate, critical contracts and key employee retention, environmental and regulatory liabilities, and pension obligations. The absence of normal representations and warranties makes W&I insurance difficult to obtain — heightening the importance of direct contractual protections.

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Example: a Franco-Swiss automotive supplier enters judicial reorganisation with CHF 8.0 million of secured debt and CHF 3.5 million of operating losses over 2 years. A strategic acquirer executes a pre-pack acquisition of the profitable operating division for CHF 2.2 million (asset deal), leaving the distressed legal entity and its liabilities with the insolvency administrator. Due diligence is completed in 12 days.

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At Hectelion, we advise acquirers and creditors in distressed M&A situations — from rapid due diligence to valuation of distressed assets under time and information constraints.