COMPANIES DO not necessarily have to settle for takeovers and fire sales, according to Clayton Utz. Referring to what it called “a miraculous salvage job”, the top-tier law firm claimed there is an alternative for ailing companies.
Over the last two years, Clayton Utz has provided the legal advice for a long-running series of divestments as well as a capital raising that together have seen the company Nylex slash its debt to $140 million from $480 million.
The Clayton Utz team believed that the cooperative efforts of the company, its lawyers and other advisers, as well as bankers, to rebuild through divestment would come to be regarded as a landmark manoeuvre in the Australian business landscape.
The strategy saw 17 businesses and dozens of properties sold across nine different countries. It has brought the company back from what initially appeared to be an irredeemable insolvency situation to one where growth is again the corporate goal, the firm said.
The process helped map out a new strategy that would help companies in similar circumstances, and give them a viable alternative to either a fire sale or a takeover, according to Clayton Utz corporate partners Nick Miller and Charles Rosedale and banking and finance partner Seak-King Huang.
The lesson for the business community, said the partners, is that lawyers can use their M&A skills as a defensive technique to de-merge. “I think with this work we have demonstrated that M&A work should not be seen just as about the big purchase deal or the big merger,” Miller said.
The sale of Nylex’s businesses yielded over $210 million, while the debt reduction from those sales put the company into a position where it could achieve a capital raising late last year of $100 million. This process brought an end to very restrictive arrangements imposed by the group’s banks and led to refinancing earlier this year on substantially better terms with three of those banks.
“It’s a story of reverse diversification that involved at least three stages and 30 months of divestments. What it’s achieved has been the return of Nylex to a profitable business with competitive advantage in the Australian market,” Miller said.
The legal team had to juggle the competing interests of trying to achieve quick sales while ensuring that each was ‘clean’ in the sense that the company wasn’t left with retained liabilities, Miller said. “This was more challenging with some private equity and MBO purchasers, compared, say, with trade buyers who are already in a similar line of business, and so have a greater level of confidence about what they’re buying.”
For banking and finance partner Huang, one of the key priorities was managing the banks’ expectations, which had “placed highly restrictive conditions on the group as a whole”, she said. The banks had insisted on an extensive divestment program and had “made it very clear what they wanted the group to achieve in terms of performance against financial covenants and debt repayment”.
“While our corporate colleagues were working on commercial aspects, we too had to use time strategically. We decided at the start, with the early divestments, to develop a fairly streamlined approach to how we deliver information to the banks’ lawyers to ensure the banks were receiving all the information they needed in neat packages,” Huang said.
“It was a balancing operation of ensuring all the information was there and that nothing was being delivered piecemeal. This way, the banks could make decisions and provide consents and releases quickly so that on the commercial front, the deals that [were] reached with purchasers were not jeopardised,” Huang said.
It was unusual and significant to prevent so many businesses, which the business community knew were subject to ‘work-out’, from being sold through fire sales, the partners said.
“What stands out about this work is not that each activity was of itself either unique or particularly high tech, but the sheer intensity of the work, and the need to stay close to disparate interests such as the bankers, the parent company, shareholders and their corporate advisors (KPMG) in order to get the deals done,” Miller said.
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