Shipping and offshore specialist law firm Wikborg Rein says current low oil prices could mean there are bargains to be had for investors in the offshore sector who follow recommended procedures for assessing and acquiring distressed companies.
Birgitte Karlsen, a partner in the London offices of Wikborg Rein, says, “The prolonged period of low oil prices, combined with reduced investment and contract awards, is taking its toll on oil service companies in the North Sea and elsewhere. For some, this may be a time of opportunity when bargains can be had, generating attractive rewards for cash-rich investors. But it is important to be aware of the risks involved in trying to acquire distressed businesses.”
“These days, oil service companies may be in varying stages of distress, ranging from a negative cashflow situation through to default, with a formal court-appointed debt restructuring or bankruptcy process in place. Time is of the essence as the distressed business either has an immediate need for assistance and funding or has already defaulted on its obligations.”
Better if target not listed
Finn Bjørnstad, a partner in Wikborg Rein’s Oslo offices, adds, “If the target company is not listed, the buyer will have significant flexibility as to how to approach and structure an acquisition. The acquisition may include both debt and equity, and new equity may be used to buy back debt at a discount. Good planning and an understanding of the stakeholders’ position, as well as the dynamics of the market, are essential.
“Some companies may already be subject to Chapter 11-type proceedings, in one or more jurisdictions, and it is essential to understand the legal implications of such proceedings with regard to approval by creditors, potential subsequent annulment of the transaction, and timing aspects. Experience shows that the legal implications in many jurisdictions are less predictable and more complicated than expected. Buyers should seek expert legal advice in preparing an effective acquisition strategy with as few surprises as possible.”
“A listed company will in most cases be subject to either government or stock- exchange takeover regulations. On the Oslo Stock Exchange, for instance, a voluntary takeover offer usually takes between four to six weeks to complete, and can take longer if the desired acceptance level is not reached at the expiry of the offer period. In the event that the listed company has a concentrated shareholder structure, a straight and quick block trade acquisition of the majority of the shares in the target company may be possible in certain cases. Such majority acquisition will in most instances trigger a mandatory takeover offer to the remaining shareholders.”
Birgitte Karlsen concludes, “There is currently a definite upside to buying distressed businesses in the offshore sector which the right buyers may be able to exploit, provided they are fully aware of the risks involved before entering into negotiations.”