Large Company Transaction - Aceto Corporation
Steven E. Siesser, Esq., Lowenstein Sandler LLP
Kenneth A. Rosen, Lowenstein Sandler LLP
Steven S. Rogers, Aceto Corporation ℅ Lowenstein Sandler LLP
Rebecca A. Roof, AlixPartners LLP
Mark Buschmann, PJT Partners LP
Reginald Dawson, Wells Fargo Bank, N.A.
Erez E. Gilad, Stroock & Stroock & Lavan LLP
Jayme Goldstein, Stroock & Stroock & Lavan LLP
About the Transaction:
Aceto Corporation, founded in 1947, was an international developer, marketer, seller, and distributor of human health products, pharmaceutical ingredients, and performance chemicals. In April 2018, with looming debt maturities, a large asset impairment, and disappointing operating results, the company’s board of directors, working with its long-time outside counsel Lowenstein Sandler LLP, invited Rebecca A. Roof, a managing director of AlixPartners, to become interim CFO through AlixPartners’ affiliate AP Services Inc. (APS) to succeed the existing CFO, who had resigned, and PJT Partners.
Over the next several months, the company, APS, Lowenstein, and PJT negotiated covenant relief from the company’s secured lenders and assessed the financial performance of Aceto, while also comprehensively evaluating strategic alternatives for the company’s businesses. Ultimately, the board, assisted by its advisors, determined that all of the assets of the company should be marketed and sold through separate transactions for the pharmaceutical operations (Rising) and the chemical operations (Chemicals) in a Chapter 11 Section 363 sale process. Critical to maximizing value for all stakeholders, the company and its advisors structured the transactions to crystallize and preserve significant net operating losses at Rising to offset virtually all of the taxable gain from the Chemicals sale. The decision provided stability and deep capital resources to both Rising and Chemicals, ensuring the continuity of employee, customer, partner, and supplier relationships, while maximizing value for the company’s stakeholders.
In February and early March 2019, the company entered into two stalking horse purchase agreements to: (1) sell Chemicals’ assets for $338 million in cash (subject to certain adjustments) with the assumption of certain liabilities, including all trade obligations, and the continued employment of most employees and (2) sell Rising’s assets for $15 million in cash with the assumption of certain liabilities, including trade obligations, of up to $122 million.
As a result of a well-planned transaction structure and marketing process, a competitive bankruptcy auction was developed for Chemicals that led to an increased sale price of $422 million from $84 million.
Proceeds from the sales satisfied all of the company’s $237 million in secured debt. Additionally, approximately $200 million remained in the estates for distribution to other stakeholders, primarily unsecured bondholders and the few remaining trade and other unsecured creditors, through the development and negotiation of a Chapter 11 plan. Recoveries for Aceto’s unsecured creditors eventually increased from an initial low-case disclosure statement estimate of approximately 70% to an initial distribution of 88%, with the possibility of payment in full to all Aceto creditors and conceivably, a return to equity.
The auctions and resulting two transactions required a multifaceted, multijurisdictional, and internationally coordinated effort among various legal and financial teams, with practice groups such as corporate, M&A, restructuring, regulatory, foreign trade, tax, litigation, securities, and real estate.
The new owners of both Rising and Chemicals are privately held entities, so no public financial results are available; however, it is believed that both entities’ businesses are flourishing and have been accretive to their respective purchasers.