Hello everyone, welcome back to our blog. Today we are going to dive a little deeper into bankruptcy asset sales and the idea of a “Stalking Horse Bidder.” I know that sounds like a very ominous way to label a bidder, but I promise it isn’t as bad as it sounds.
Essentially, a Stalking Horse Bidder is a party that agrees to offer a baseline, fair market bid for the assets being offered. This approach is not one that is commonly advertised, however, it can be advantageous for both parties in a variety of ways. For the debtor that is required to get maximum value for the assets, this baseline bid protects the assets from being approached with low-ball bids from parties interested in getting a steal. Additionally, the party that elects to be the Stalking Horse Bidder will typically conduct the due diligence, or the reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something. That brings us to some of the benefits the bidder receives. To incentivize the bidder to place the first bid, the debtor will typically provide around a 3% breakup fee. This ensures that if the Stalking Horse Bidder is outbid, that there is a small percentage of the sale that the initial bidder receives as payment for their due diligence and ability to create the market. The Stalking Horse may also receive a reimbursement instead of the breakup fee, or exclusivity to the assets in whole.
There are many advantages to involving the Stalking Horse Bidder in the sales of the bankrupt firm’s assets and this is something that should be considered to get maximum value.
If you are considering your options while winding down your business, it would be a great advantage to partner up with an industry expert such as FabExchange. Our consultants, not only have legal background knowledge but also a deep understanding of the semiconductor, R&D, and manufacturing industry. To learn how FabExchange can help you navigate your unique situation, contact email@example.com.