Cooley Helps Cylex Use Chapter 11 Bankruptcy to Achieve Exceptional Sale Price

Cooley represented client Cylex Inc., a Maryland-based life sciences company, whose diagnostic test kit detects immune function in organ transplant patients, in a highly successful sale of the company's assets through a distressed M&A process.

Crushed by the expense and cloud of a U.S. Attorney investigation triggered by a False Claims Act qui tam complaint, Cylex was running out of money and unable to attract further investment or find a buyer. Working closely with Cylex's leadership, Cooley crafted a strategy to utilize the Chapter 11 bankruptcy Section 363 sale process to allow a buyer to purchase Cylex's assets "free and clear" of the False Claims Act claims. After several months of negotiations with a strategic bidder, on November 21, 2012, Cylex executed an asset purchase agreement with this "stalking horse bidder" at a price of $6 million, subject to higher and better bids. The Chapter 11 case was filed in Delaware on December 3, 2012, after which a short but intense M&A re-marketing process began. On the "overbid" deadline of January 18, 2013, two new strategic bidders submitted topping bids at the $6.7 million minimum overbid price. 

An auction was held on Tuesday, January 22, 2013 with all three bidders present. After 16 rounds of bidding, spanning more than 12 hours, the winning bid was a stunning $14.425 million, which was more than $8 million over the stalking horse bid. The Bankruptcy Court approved the sale on January 23, 2013, and the sale closed in February.

As a result of the bankruptcy strategy that the Cooley team developed and executed, Cylex, now known as Immunology Partners Inc., sold its assets at 2.6 times revenue – a multiple typically reserved for healthy companies in its industry – despite its financial distress and external legal issues. 

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