August 11, 2020 – Generac Power Systems, Inc. (“Generac”), a leading manufacturer of home generators and potential bidder for all or part of the Debtors' assets, has objected to the Debtors’ bidding procedures motion; arguing that the procedures, and the Debtors' handling of the sales process more generally, have effectively eliminated the opportunity for any meaningfully competitive sales process [Docket No. 367].
Urging the Court to address what they summarize as procedures/process that are not merely "bid chilling" but raise to the level of impossibility ("[it has been] impossible for any potential bidder to evaluate or make a bid for any portion of the business assets, or to credibly assess business-level synergies"), Generac requests that the bidding procedures be redrafted to allow for partial bids and that "unreasonably expedited deadlines" be extended. Failure to do so, Generac argues, is simply playing into the hands of private equity stalking horse (and DIP lender) KPS Capital Partners, LP and the stalking horse's efforts to "stifle" competitive bidding.
Generac casts particular shade on the Debtors' data room and an "anything but smooth" diligence process, noting that it has been able to access only 30% of promised files and very little of utility beyond what is publicly available; leaving a meaningful assessment "impossible." Generac is clearly interested in making a partial bid and/or teaming up with bidders interested in other discrete portions of the Debtors' business in a bid that could, if grouped, challenge the "substantially all assets" bid from the stalking horse. The bidding procedures as drafted, Generac argues, makes partial bids or collective bids impossible.
The objection states, “Within 39 days from the date the Bid Procedures Motion was filed, potential bidders are expected to complete their due diligence process, satisfy the conditions for a ‘Qualified Bid,’ and submit a bid to compete with the bid of the Stalking Horse that took months of negotiations to finalize prior to the Petition Date.
The bid deadline is only one in a series of unreasonably expedited deadlines that contemplate entry of a Bid Procedures order by August 11, 2020, an auction on September 1, 2020, and a sale hearing on September 11, 2020. According to the Debtors, the saving grace for companies not contacted prior to the Petition Date (like Generac), is that such potential bidders ‘will have immediate access to, subject to the execution of an appropriate confidentiality agreement, a substantial body of information regarding the Debtors’ assets, including information gathered based upon specific due diligence requests of various prepetition bidders that participated in the Prepetition M&A Process.’… But what Debtors do not mention is that the process for accessing due diligence information has been anything but smooth…In total, the data room includes approximately 6,800 individual files, of which Generac only has access to approximately 1,900 files, or less than 30%. Of the documents Generac is able to view, Generac has been provided limited historical information on the individual business performance. Financials available to Generac provide the broader segment-level reporting (engines vs. products) that is already available in the Debtors’ public filings. No business-level projections have been made available. Without making such information available, it becomes impossible for any potential bidder to evaluate or make a bid for any portion of the business assets, or to credibly assess business-level synergies that would allow bidders to conduct a true valuation of the entire company. This further demonstrates that the bid process is flawed and not designed to maximize value.
‘Qualified’ bids must propose a purchase price greater than the Stalking Horse bid (plus certain bid protections granted by the Debtors to the Stalking Horse), which of course is a bid for substantially all assets. This leaves potential bidders who want to bid on a subset of assets in a quandary: find other bidders who want to combine bids prior to the bid deadline (without knowing who all of the other bidders might be), or submit a bid that may be rejected because it is not ‘Qualified.’ When confronted with this unfair provision in the Bid Procedures, Debtors’ investment banker stated that ‘if Houlihan receives a collective group of bids for the various parts/brands that sum up to greater than the Stalking Horse bid [then] those other bids can be deemed a Qualified Bid…. This statement from the Debtors’ investment banker does not match the proposed Bid Procedures, but even if one takes Debtors’ word for it, it is unreasonable and unfair to exclude bids for a subset of the assets at the qualification stage. If the goal is to ‘maximize value,’ subset bidders should be allowed to participate in an auction and combine with similar bidders then and there. Debtors’ process would unfairly exclude such bids unless they align perfectly as of the expedited bid deadline…. More troubling yet, the Stalking Horse is funding the full amount of the DIP Term Loan Facility, and, among other things, can terminate its purchase agreement if the Bid Procedures are not approved by August 25, 2020. There is also a 1% prepayment premium payable to the Stalking Horse as DIP lender only if the businesses are sold to someone other than the Stalking Horse…. For all of the reasons discussed above, these Bid Procedures will chill bidding, not enhance it.
Generac asks that the Bid Procedures be changed to remove the requirement that each bid exceed the Stalking Horse Bid, no matter which assets are included in the bid. A bid should be deemed ‘qualified’ if it encompasses a subset of Debtors’ assets for a purchase price less than the Stalking Horse bid, but otherwise meets all of the other requirements for a ‘Qualified Bid.’ Generac further requests that potential bidders be given thirty (30) days to submit bids after a new bid process is established and approved, provided Debtors be required to grant immediate access to bidders like Generac sufficient business-level, detailed information such that prospective bidders may properly evaluate distinct asset lots and business or product lines of the Debtors. The Stalking Horse should not be allowed to use its position as a DIP lender to hinder competitive bidding by imposing unreasonable deadlines on the bid and sale process. Indeed, because the Stalking Horse wears two hats—both bidder and DIP lender—the Court should scrutinize the Bid Procedures more carefully to ensure that they truly enhance competitive bidding, not stifle it in favor of the Stalking Horse.”
Further Background
Key Terms of the Stalking Horse APA
- Seller: Briggs & Stratton Corporation, a Wisconsin corporation, Billy Goat Industries, Inc., a Missouri corporation, Allmand Bros., Inc., a Nebraska corporation, Briggs & Stratton International, Inc., a Wisconsin corporation and Briggs & Stratton Tech, LLC, a Wisconsin limited liability company (together, “Sellers”).
- Buyer: Bucephalus Buyer, LLC, a Delaware limited liability company (“Buyer”), an affiliate of KPS Capital Partners, LP.
- Purchase Price: $550.0mn in cash;
- Plus/minus a net working capital adjustment to be finalized following the closing;
- Plus $0/Minus a downward adjustment only, if any, for the amount of cash in the Debtors’ subsidiaries to be finalized following the closing;
- Plus/Minus an adjustment for the amount of the indebtedness of the Debtors’ subsidiaries to be finalized following the closing;
- Minus an amount equal to the value of certain letters of credit;
- Minus an amount equal to the Buyers credit bid which shall be the aggregate amount owed to the Buyer or an affiliate of the Buyer under the DIP facility; and
- The Buyer’s assumption of the assumed liabilities set forth in the Stalking Horse Agreement.
- Credit Bid: The Purchase Price includes the possibility that the $550.0mn in cash may be reduced by, among other things, the Stalking Horse Bidder’s credit bid in an amount equal to the aggregate amount owed under the Debtors’ $265.0mn debtor-in-possession (“DIP”) Term Loan Facility. A July 20th interim DIP order allowed the Debtors to access $20.0mn of this facility which is being provided by the Stalking Horse Bidder.
- Bid Protections: (i) a break-up fee in an amount equal to 3% of the Stalking Horse Cash Consideration ($16.5mn) and (ii) an expense reimbursement of up to $2.75mn. Any competing bid must exceed that of the Stalking Horse Bidder by the aggregate of the break-up fee, the expense reimbursement and $1.0mn. Minimum bidding increments are also set at $1.0mn
Proposed Key Dates:
- Bidding Procedures Hearing: August 11, 2020
- Bid Deadline: August 28, 2020
- Deadline for the Debtors to file notice cancelling the Auction: August 31, 2020
- Auction: September 1, 2020
- Deadline to file objections to Sale: September 8, 2020
- Sale Hearing: September 11, 2020
About the Debtors
According to the Debtors: “Briggs & Stratton Corporation (NYSE: BGG), headquartered in Milwaukee, Wisconsin, is focused on providing power to get work done and make people’s lives better. Briggs & Stratton is the world’s largest producer of gasoline engines for outdoor power equipment, and is a leading designer, manufacturer and marketer of power generation, pressure washer, lawn and garden, turf care and job site products through its Briggs & Stratton®, Simplicity®, Snapper®, Ferris®, Vanguard®, Allmand®, Billy Goat®, Murray®, Branco® and Victa® brands. Briggs & Stratton products are designed, manufactured, marketed and serviced in over 100 countries on six continents.”
About Generac Power Systems, Inc.
According to Generac: "Founded in 1959, Generac was the first to engineer affordable home standby generators, along with the first engine developed specifically for the rigors of generator use, and is now the #1 manufacturer of home backup generators. Generac manufactures the widest range of power products in the marketplace including portable, residential, commercial and industrial generators. We are also the leading designer and manufacturer of manual and fully automatic transfer switches and accessories for backup power applications up to 2 MW.
Our Generac Mobile line of powerful, high-quality light towers, trailer-mounted mobile generators and combination units are designed and built for a variety of industries and the most demanding environments.
Generac also pioneered the residential power washer category, putting the power to clean into the hands of homeowners. Today, Generac features a full line of innovative, industry-leading power washers suitable for virtually any application, including the toughest commercial and industrial environments.
At Generac, we protect the things that power your life by providing quality, affordable power solutions."
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