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Distressed M&a and Corporate Strategy Lessons from Marvel Entertainment Group's Bankruptcy

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Case Distressed M&A and corporate strategy: lessons from Marvel Entertainment Group’s bankruptcy
Joseph Calandro Jr

Joseph Calandro Jr is the Enterprise Risk Manager of a global financial services firm and a Finance Department faculty member of the University of Connecticut (joseph.calandro@ business.uconn.edu).

s the current recession unfolds, indications are that corporate executives and strategists will be making decisions in an economically distressed environment for some time to come.[1] Historically, investment and M&A activity tend to decline during periods of economic distress. However, a specialty form of acquisition, known pejoratively as ‘‘vulture investing’’ has flourished during such times. Perhaps because it has been practiced as a specialty by financiers accustomed to balancing high risks for quick rewards, acquiring distressed companies has not been widely viewed as a corporate strategic opportunity. Recently, however, distressed M&A has become more common:

A

B

as of April of 2009, there were 60 distressed M&A deals for the year including Valero Energy Corporation’s purchase of VeraSun Energy Corporation’s assets in bankruptcy; in 2008, there were 220 distressed deals; and in 2007, there were 134.[2]

B B

When assessing distressed M&A opportunities, corporate strategists should leverage their industry knowledge and expertise to search for hidden value, and also to select qualified industry experts to validate strategic and valuation assumptions. The interesting bankruptcy of Marvel Entertainment Group, Inc. (Marvel) demonstrates the kind of hidden value-based opportunities that are sometimes found in distressed M&A. The Marvel bankruptcy also answers a number of distressed M&A questions such as:
B

How does a firm with a great performance record like Marvel become a distressed investment? (Marvel was acquired in 1989 for $82.5

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