How to Execute Distressed M&A in 2025: What I Learned from Sullivan & Cromwell’s Mimi Wu

If you’ve been in M&A long enough, you’ve seen deals go sideways. But what happens when a company is completely upside down—drowning in debt, staring down lawsuits, or watching its cash flow burn at an unsustainable rate? That’s when things get really interesting.

For companies in distress, M&A isn’t just about growth—it’s survival. And for buyers? It’s an opportunity to pick up valuable assets at a fraction of the cost. But navigating distressed deals, Chapter 11, and 363 sales is an entirely different game.

That’s why I sat down with Mimi Wu , Partner at Sullivan & Cromwell LLP , on the M&A Science Podcast to get a masterclass on executing distressed M&A. Mimi’s been in the trenches of some of the most complex bankruptcies, from FTX to Kidde-Fenwal, and she shared a ton of insight into how these deals really play out.

Let’s break down three of the biggest takeaways from our conversation.

1. Distressed M&A Is a Game of Strategy—Not Panic

If there’s one thing I took away from Mimi, it’s this: don’t panic when things go south. In fact, companies that get ahead of distress—before a total meltdown—have way more options.

“Don't panic when you're in bankruptcy. Don't panic if the sales process isn't going well, because most of the time your bankers and your lawyers can come up with something to help fix it.”

But let’s be real—no one wants to end up in bankruptcy court. So what are the early moves companies should make when they see trouble on the horizon?

• Negotiate with creditors – If you can restructure your debt outside of court, that’s usually the first step.
• Raise capital – Private equity, PIPE deals, or even asset-backed loans can buy time.
• Sell non-core assets – Sometimes the best move is to slim down and refocus.

If all else fails, Chapter 11 bankruptcy becomes the last-ditch play—but even then, it’s not necessarily a death sentence. It’s a tool.

2. 363 Sales: The “Clean Slate” Approach to Buying Distressed Assets

For buyers, 363 sales are where things get exciting. If you’re not familiar, a 363 sale allows a bankrupt company to sell assets free and clear of debt, lawsuits, and other liabilities. That means as a buyer, you get to cherry-pick the best parts of a business—without the baggage.

“One of the most valuable things about a 363 sale is that the assets get sold and blessed by the court in a sale order as free and clear of all interests. And that's interpreted very broadly.”

Basically, this is where private equity firms, distressed investors, and strategic acquirers swoop in.

• You get the assets, but not the headaches.
• You can reject bad contracts (like expensive leases).
• ?The sale process moves fast—sometimes within months.

But here’s the kicker: You need to be ready to move fast.

One of my favorite parts of this conversation with Mimi was when she broke down the 363 auction process. It’s literally like a Sotheby’s-style live auction, where bidders are put in separate rooms and have to place real-time counteroffers. I could practically picture the tension in the room.

“That's the most fun part of a 363 sale. You get people in rooms, and you go down the line—this person bids 100 million, the next person bids 105, then 110—and you keep going.”

If you’re a buyer, you better come with your checkbook ready.

3. The Stalking Horse Bidder: The Smartest Player in the Room?

One of the most underrated power moves in distressed M&A is being the stalking horse bidder. If you play it right, it’s a low-risk, high-upside way to win deals—or get paid to lose them.

Here’s how it works:

• You set the floor price in the auction.
• ?If you lose, you get a breakup fee (typically 3% of deal value).
• You control the initial contract terms.

“A stalking horse bidder provides the floor price in an auction, and the contract they've negotiated is the base contract all other bidders have to work off of.”

I joked with Mimi that I might just go into the stalking horse business—come in with a strategic bid, either win a deal or walk away with a few million in break-up fees. Not a bad business model, right?

But seriously—if you’re looking to acquire distressed companies, positioning yourself as a stalking horse bidder gives you a major edge.

Final Thoughts: Distressed M&A in 2025

With rising interest rates, economic uncertainty, and shifting market conditions, I think we’re going to see a lot more distressed deals in 2025. That means opportunity for those who know how to play the game.

If you’re a seller – Start planning before you’re in a full-blown crisis. The earlier you move, the more options you have.

If you’re a buyer – Network with restructuring bankers, get in before a company files bankruptcy, and don’t be afraid to be the stalking horse.

“The key to distressed M&A is preparation—companies and buyers who move fast, have a plan, and understand the process will always come out ahead.”

Distressed M&A isn’t for the faint of heart, but for those who know how to play the game, there’s massive upside.

What do you think? Are we going to see a wave of distressed deals in 2025? Have you ever been part of a 363 sale? Drop your thoughts in the comments below!