Stalking Horse Bids: What Comes With The Territory

The concept of the stalking horse originates in hunting, where a hunter releases a horse in a field and trails behind it so as not to alarm the targeted game. In distressed M&A, a stalking horse bid (the Bid) is an initial proposal from an offeror selected from a group of prospective bidders (the Bidder) to buy assets from a distressed company, typically one that is involved in bankruptcy and insolvency proceedings (the Target). The purpose of the Bid is to induce an auction process and a baseline offer price for assets.

The transactional framework for distressed M&A involves a court-approved auction process with prospective bidders, leading to confidentiality agreements, expressions of interest or letters of intent, a due diligence period, binding vendor purchase agreements (typically with minimal representations and warranties), negotiations with top bidders, and final executed purchase agreements.