Managing Director, Houston
The situation: Company faces looming debts and disappointing performance
Founded in 1947, Aceto Corporation was an international developer, marketer and distributor of health products, pharmaceuticals and performance chemicals, headquartered in New York and New Jersey. In April 2018, with looming debt maturities, a large asset impairment, and disappointing operating results, the company’s directors, working with long-time counsel Lowenstein Sandler LLP and banker PJT, engaged AlixPartners’ Managing Director Becky Roof as interim CFO.
Over the next few months, covenant relief was negotiated from the company’s secured lenders and strategic alternatives were evaluated. A 13-week cashflow forecast for each area of the company was developed, along with robust budgets and five-year business plans for each of its business segments, in order to provide a firm basis for negotiation and decision making.
Concurrently, a market analysis was carried out to determine likely buyers for each segment of the company to decide whether selling the company as a whole or in parts would provide more value.
The approach: Dividing the business to maximize value
It was decided to divide and sell the company’s assets through separate transactions for the pharmaceutical (Rising) and chemical (Chemicals) operations, and Aceto filed for Chapter 11 bankruptcy protection in February 2019 with a $338M stalking horse agreement in place for the Chemicals business. While the sale of Rising as a going concern had initially been in doubt because of regulatory issues around the pharma industry and poor relationships with suppliers, the prior seller of the Rising assets to Aceto eventually agreed to repurchase the assets for $15M in cash, with the assumption of certain liabilities including most trade obligations.
A competitive bankruptcy auction was developed for the Chemicals business, which led to an increased sale price of $422M. The proceeds covered the company’s $237M of secured debt, with $200M remaining in the estates for distribution to other stakeholders. Recoveries for Aceto’s unsecured creditors led to an 88% distribution, with the possibility of paying all Aceto creditors in full and a return to equity.
To maximize value, both transactions were structured to preserve significant net operating loss to offset virtually all taxable gains from the sale of the Chemicals business. This structure also provided stability and capital resources to ensure continuity of employee, customer, partner and supplier relationships.
The sale transactions were achieved within 90 days of the filing and the company emerged from bankruptcy within eight months.
The auctions and transactions required a multi-faceted, multi-jurisdictional and internationally coordinated effort among legal and financial teams, with practice groups such as corporate, M&A, restructuring, regulatory, foreign trade, tax, litigation, securities and real estate.
The solution: Saving over 95% of workforce jobs and new businesses flourishing
Aceto remains one of Long Island, New York’s largest corporate employers, with more than 200 employees split between its US headquarters and offices around the world.
At the time of the bankruptcy filing, Aceto had 297 full-time employees. As a result of the successful transaction, 96% of the jobs were saved. In the Chemicals business each of the 207 employees received a permanent, full-time offer. In the Rising business 86% of the employees received permanent job offers.
The new owners of both the Rising and Chemicals businesses are private entities and appear to be thriving.
This case demonstrates how positive outcomes are achievable in extremely difficult circumstances. By effectively managing the company’s Chapter 11 process and sale transactions, AlixPartners has helped provide direct benefits to the workforce, the two local communities where the Aceto businesses were headquartered, and the businesses and consumers worldwide which relied (and continue to rely) on the company for supply of pharmaceutical and chemical products.
For their work on this case, AlixPartners and Becky Roof were named a TMA Transaction of the Year Winner 2020 (large, public company).