Explore a compelling M&A story as a Houston-based buyer navigates the acquisition of crucial assets from a bankrupt California nursery. Delve into the court-approved transfer of vital real estate leases and the buyer’s financial strength, backed by a $58 million credit line and positive cash flow projections. Gain insights into the strategic advantages of acquiring businesses in bankruptcy, overcoming legal hurdles, and the discretionary power of bankruptcy judges. Case reference: In Re Color Spot Holdings, Inc., Civ. No. 18-1246 (UNA).
M&A Stories
August 30, 2018
In a notable M&A development, a family-owned nursery in Houston seized an opportunity, acquiring substantial assets from a bankrupt greenhouse operation in Temecula, California. The seller, facing chapter 11 bankruptcy, received court approval for the sale of its Hines division assets, totaling over 2,000 acres in California and Oregon.
Key Points:
The buyer, headquartered in Houston, Texas, and already managing 4,000 acres across 16 locations in California, Texas, and Florida, emerged as a suitable candidate. The bankruptcy court not only sanctioned the asset sale but also approved the transfer of three critical real estate leases from the seller to the buyer. Despite landlord objections, a Delaware U.S. district court dismissed their appeal to halt the lease transfers.
Court Rationale:
The district court’s decision rested on the buyer’s robust financial standing, highlighting:
Access to a $58 million line of credit, specifically expanded for this transaction. Assurances from the buyer’s CFO regarding positive cash flow in 2019. Favorable balance sheets from 2015 through 2017, demonstrating a significant surplus of asset value over debt.
Insights:
This case underscores the strategic advantage of acquiring a business in bankruptcy, particularly concerning vital real estate leases. Bankruptcy law prevails over anti-assignment lease clauses, subject to the bankruptcy court’s assessment of the buyer’s financial capacity to meet tenant obligations. Appellate courts grant considerable discretion to bankruptcy judges in such determinations.
Case Reference:
In Re Color Spot Holdings, Inc., Civ. No. 18-1246 (UNA), United States District Court, D. Delaware, (August 21, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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