Thompson Law Group, P.C.

Stalking horse bid buys company in bankruptcy auction

Business bankruptcies in Pennsylvania and other jurisdictions often serve the purpose of bringing together the bankrupt company with an investment firm that acquires most or all of the company's assets. This happened recently in connection with the Chapter 11 bankruptcy of a large industrial supply company. An investment firm called Staple Street Capital made a "stalking horse" bid for purchase of the national pipe, valve and fittings supplier.

The bid ended up being the highest and prevailing one for purchase of the company. The price and other terms were not announced. The intricate dynamics of a stalking horse bid might take a long time to understand in depth, but the general purpose behind the maneuver is to minimize low-ball offers in a bankruptcy auction.

The company selects an interested party to make an initial stalking horse bid prior to the auction, with an open invitation for other bids. In essence, the stalking horse has set the minimum price below which no lower bids will be considered. If higher bids come in, one of those may prevail. If no higher bids come in, the stalking horse bid will win.

Staple Street Capital was thus able to purchase Mid-States Supply in the bankruptcy through the stalking horse bid procedure. The investment company's CEO announced that the purchase of Mid-States Supply will provide Mid-States with the capital and operating resources to restructure its operating strength. It will give the company the impetus it needs to strengthen and improve its position in its industry sector.

The purchase will apparently not substantially affect the current management and continuity of the company's leadership. Mid-State's CEO announced that the company was excited to be partnering with Staple Street. The transaction once again demonstrates how a company in Pennsylvania or another jurisdiction can emerge from a business bankruptcy in an enhanced financial condition, with a much better chance of growing its position in its industry going forward.

Source:, "NY equity firm buys KC distributor out of bankruptcy", James Dorbrook, April 20, 2016

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