It has for a number of years been more or less standard procedure in sales processes, especially among private equity houses, to look at the possibility of a ‘dual track’ approach – a listing of the target in parallel with a regular controlled auction private sales process. The rationale for the dual track is, of course, to avoid putting all of your eggs in one basket.
The dual track approach is naturally dependent on a working capital market environment, so the fact that the financial crisis in the wake of
the Lehman collapse effectively took away the possibility of a regular dual track approach should not come as a surprise to anyone. Instead
the financial crisis has created a new form of dual track, where the second track is a windingdown of the target company rather than an IPO.
An example – the sale of Saab Automobile A very good example of this new form of dual track approach is General Motors’ (GM) recently closed sale of the Swedish car manufacturer Saab Automobile AB (Saab), where Hammarskiöld & Co acted for GM.
Like many other carmakers, Saab was bleeding severely in the autumn of 2008 and GM had made it clear that it was not willing to support the company beyond 2009. The alternatives for the company were therefore to either be sold quickly or be wound down.
It was decided early on in the process to prepare both alternatives in parallel.
This lead to a kind of ‘fire sale’ process that was unlike the types of structured auction processes normally held prior to the financial crisis. GM had spent the last two decades trying to fully integrate Saab with GM, but Saab was now to be separated out of GM within a couple of months in parallel with the bidding
process. In addition, Saab was from the start of the process put into corporate reorganisation in order to reduce the losses.
When the first selected purchaser, Swedish ‘supercar’ manufacturer Koenigsegg Group AB, decided to pull out from the deal in November 2009, GM was able to switch over to the windingdown track that had been prepared during the negotiations. However, within a couple of days yet another supercar manufacturer, Spyker Cars NV, showed interest and the sales process was restarted with hopes of being able to reach a deal quickly before year end.
However, just hours before the intended signing of the SPA with Spyker, the deal once again fell apart due to certain issues that had arisen which both parties believed could not be resolved. As a result, on 18 December 2009,
GM announced it would instead start an orderly wind-down of Saab’s operations.
The deal team therefore switched to the winding-down track, while discussions were still ongoing with Spyker to find a solution for a possible sale. In the beginning of January 2010 Saab was put into voluntary solvent liquidation while GM and the Hammarskiöld & Co team continued discussions with Spyker. On 26th January 2010, the parties were able to reach an agreement on the sale of Saab which then closed at the end of February 2010.
Lessons learned By keeping both alternative tracks alive throughout the process, it is possible to avoid a situation where the seller would be forced to make unjustifiable concessions due to the lack of a clear alternative path. The unique decision to put the company into voluntary solvent liquidation while discussions with bidders were still ongoing was a huge surprise to both the
target company and the bidders, but it showed clearly how realistic and credible the alternative track with a winding-down was.
In our opinion, this form of alternative dual track process is a very valuable tool for the seller of an ailing company for building up the pressure and attention necessary for a successful auction sales process. Without the threat of a credible alternative, the risk of having a stranded process – with bidders circling like vultures – is far too great to be overlooked.
Just as with the ordinary dual track process, the new dual track process will lead to slightly higher transaction costs; but compared to the alternative of having the sales process stranded without a clear and credible alternative, this is definitely justifiable cost.