Explore a recent case where an investment banker successfully secured their fee in a Chapter 11 asset sale, despite opposition from the trustee and creditors. Learn about the background, prepetition efforts, Chapter 11 petition, auction outcome, and the court’s decision in the In re Garces Restaurant Group, Inc. case.
M&A Stories
January 21, 2019
In a recent case, an investment banker succeeded in securing its fee in a Chapter 11 asset sale, even in the face of opposition from the trustee and creditors. Here’s a breakdown of the story:
Background:
A celebrity chef-owned small restaurant chain hired an investment banker in 2017 to help with a recapitalization or sale of their assets. The investment banker received a $50,000 retainer and agreed to provide a range of services, including financial analysis, marketing materials, and due diligence.
Prepetition Efforts:
The investment banker identified and contacted potential buyers, providing them with detailed information about the business. Forty-six potential buyers expressed interest, and ten submitted letters of intent. However, negotiations with a preferred bidder fell through due to litigation by minority shareholders.
Chapter 11 Petition:
In May 2018, the restaurant chain filed for Chapter 11 bankruptcy but retained the investment banker under the same terms. Post-petition negotiations resumed, and the buyer became the stalking horse bidder. Simultaneously, the investment banker continued marketing efforts.
Auction Outcome:
An auction was scheduled, but only the buyer appeared, resulting in an increased cash offer. The sale was approved, and the investment banker requested a fee of $318,000, which the creditors opposed.
Court’s Decision:
The court approved the fee, considering both pre- and post-petition efforts by the investment banker. It noted that the investment banker had actively engaged with potential buyers and helped negotiate the buyer’s increased cash offer after the auction. The court found the fee reasonable.
Final Thoughts:
The investment banker’s services benefited the bankruptcy estate by exposing the sale to many interested parties, despite no buyers appearing at the auction. The court reviewed the fee under the imputed hourly rate method and found it comparable to fees in similar cases.
Case Reference:
In re Garces Restaurant Group, Inc. Case No. 18-19054 (JNP) (Jointly Administered, United States Bankruptcy Court, D. New Jersey, (January 11, 2019).
By John McCauley: I help people start, grow, buy and sell their businesses.
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