3 Big Differences Between 363 Sales and M&A Transactions

Partners from Skadden discuss how a distressed company can benefit from one reorganization strategy more than another.

14 September 2020

3 Big Differences between 363 Sales and M&A Transactions

Intralinks Ben Collins recently spoke with partners from Skadden, a global legal firm that advises corporations, financial institutions and government entities around the world on their most complex, high-profile matters, about the courses of action distressed companies can pursue in the wake of a weakened economy. Although these processes can be complex, they can help a business mitigate damage and financially recover.

363 sales and out-of-court M&A transactions are two favored examples of reorganization strategies. There are differences between the two – required approvals, assets sold and protections available – and, depending on a company's situation, the business could benefit significantly more from one type of restructuring plan than the other.

Faiz Ahmad, a partner at Skadden, explains that a 363 transaction requires bankruptcy court approval. The organization also needs board approval, but it typically doesn't need approval from the stock board. In regular M&A, though, the organization needs board approval and oftentimes stockholder approval, but no court approval is needed.

A 363 process also gives participants more flexibility in terms of assets. A 363 sale almost always involves an asset sale, whereas in out-of-court regular M&A you typically do an equity deal and sometimes asset sales as well, Faiz says. In bankruptcy, the assets are sold free and clear under 363, and you can really pick and choose the assets that you want to take or the liabilities you want to leave behind. So you have much more flexibility than you would have in a regular way M&A transaction where you're typically taking the entire company.

And third, the protections available to participants during a transaction can vary. 363 sales involve limited reps and warranties, and the assets are generally sold as-is; unlike in traditional out-of-court M&A where you could have substantial reps and warranties, you can negotiate for indemnification, Faiz explains. These are things to give you some recourse post-close against the sellers.

To learn more, watch Ben’s full video interview with partners from Skadden below.

Aiko Suyemoto

Aiko Suyemoto

Aiko Suyemoto is Intralinks’ Senior Associate on the Product Marketing team, supporting the M&A, Banking and Securities and Alternative Investments lines of business. She also has experience in corporate communications and business consulting.