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December 9, 2022 – The Debtors filed a motion requesting each of a bidding procedures order and a sale order [Docket No. 15]. The bidding procedures order would: (i) approve bidding procedures in relation to the sale of the substantially all of the Debtors’ Pharmaca business assets (the “Sale”), (ii) authorize the Debtors to enter into stalking horse arrangements with MedPharmaca Holdings, Inc. (the “Stalking Horse Bidder*,” $18.5mn bid), including in respect of a $450k break-up fee and a $500k expense reimbursement, and (iii) adopt a proposed auction/sale timetable culminating in an auction on January 17th and a sale hearing on January 19th. The sale order would approve the Sale. The Stalking Horse Bidder’s asset purchase agreement (the “APA”) is attached as Exhibit B to the motion.
*The Stalking Horse Bidder "is affiliated with the DIP Lender and the Prepetition TPC Lenders but does not serve as a lender to the Debtors." The APA lists each of TerraMar Capital and TriplePoint as contacts in respect of the Buyer. In the bankruptcy context, we most recently saw TerraMar Capital (which "provides debt and equity capital to middle-market businesses facing an inflection point") acquiring assets in each of the Francesca's and Lolli & Pop Chapter 11s.
On December 9, 2022, Medly Health Inc. and 31 affiliated Debtors (“Medly” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. At filing, the Debtors, operators of pharmacies and health and wellness stores, cited (i) a failed effort to create a nationwide, online pharmacy business and unsustainable IP/software costs in building out the online iteration of their traditionally bricks-and-mortar business and (ii) an investigation into legacy accounting practices and the founders of the business that implemented them.
Also on December 9th, the Debtors requested Court authority to access $8.0mn in new money, debtor-in-possession (“DIP”) financing (including $4.0mn on an interim basis) to be provided by prepetition lenders TriplePoint Venture Growth BDC Corp., TriplePoint Capital LLC and TriplePoint Private Venture Credit Inc.
Key Terms of the APA:
- Seller: Medly Health Inc.
- Buyer: MedPharmaca Holdings, Inc.
- Assets: Substantially all of the Debtors' Pharmaca business and certain other assets (collectively, the “Acquired Assets”)
- Purchase Price: $18.5mn cash subject to adjustments, with the APA specifying: "The consideration for the Acquired Assets shall be (i) an amount in cash equal to the sum of (A) Eighteen Million Five Hundred Thousand Dollars ($18,500,000) (the 'Base Purchase Price'), minus (B) the Inventory Shortfall, minus (C) the Accounts Receivable Shortfall, minus (D) the Prepaids Shortfall plus (E) the Inventory Excess, plus (F) the Accounts Receivable Excess, plus (G) the Prepaids Excess (collectively, the 'Purchase Price') and (ii) the assumption by Buyer of the Assumed Liabilities pursuant to the Assignment and Assumption Agreements."
- Bid Protections: (i) a breakup fee in the amount of $450k and (ii) an expense reimbursement not to exceed $500k. There is also a $250k minimum bid increment.
The bidding procedures/sale motion [Docket No. 15] notes, “[t]he Debtors faced severe liquidity and operational challenges in the summer and fall of 2022. During this time frame, the Debtors reached out to several parties, including certain of their competitors, to determine any interest in either a potential financial restructuring or sale of the Debtors’ business. While several parties executed nondisclosure agreements and performed certain diligence on the Debtors’ business, no offers were received.
In late November 2022, the Debtors and the Stalking Horse Bidder began negotiating the Stalking Horse Agreement. In order to pursue the potential Sale, the Debtors negotiated bridge financing from the Prepetition TPC Lenders under the TPC Loan Agreement to fund operations during the sale process in these chapter 11 cases…
On December 9, 2022, the Debtors entered into the Stalking Horse Agreement with the Stalking Horse Bidder, who is affiliated with the DIP Lender and the Prepetition TPC Lenders, but does not serve as a lender to the Debtors. The Stalking Horse Agreement seeks to sell the Acquired Assets to the Stalking Horse Bidder, subject to higher and better bids, in consideration of payment to the Debtors of $18,500,000 as the Base Purchase Price subject to adjustments as set forth in section 2.1(a) of the Stalking Horse Agreement.
The Debtors intend to broadly market their assets postpetition with the goal of fostering a robust bidding process and a competitive auction for the sale of the Acquired Assets consistent with terms of the proposed Bidding Procedures. The Debtors have and will continue to pursue interest from direct competitors, the largest pharmacies in the country, and other investor groups interested in early stage healthcare companies to solicit offers for the sale of the Acquired Assets. The Debtors will send (to the extent not already provided), notice of this Motion to all parties that they believe may be potentially interested in acquiring the Acquired Assets, including to the parties contacted prepetition. The Debtors will assist interested parties who either have, or will, execute confidentiality agreements acceptable to the Debtors to conduct diligence on the Acquired Assets, in accordance with the Bidding Procedures. The Debtors believe that the marketing of the Acquired Assets over the period contemplated by the Bidding Procedures, in addition to the marketing activities that have taken place to date, will result in the highest and best purchase price for the Acquired Assets and maximize value for all of the Debtors’ constituents.”
The motion continues, “The Debtors, with the assistance of their advisors, will continue to market the Acquired Assets to potential purchasers. As such, the Debtors believe that prospective bidders will have sufficient time and information to conduct the necessary due diligence to submit binding bids in accordance with the timeline proposed herein.
Completion of the sale process in a timely manner will also maximize the value of the Acquired Assets obtained through the proposed Sale. The proposed dates governing the Sale, marketing, and auction process are within the Milestones provided under the Interim DIP Order. Failure to adhere to the Milestones would constitute a default under the Interim DIP Order. Accordingly, it is in the Debtors’ and their stakeholders’ best interests to complete a robust sale process as swiftly as possible to consummate the Sale within the parameters set by the Milestones.”
Proposed Key Dates:
- Bidding Procedures Objection Deadline: December 22, 2022
- Bidding Procedures Hearing: December 29, 2022
- Bid Deadline: January 13, 2023
- Auction: January 17, 2023
- Sale Hearing: January 19, 2023
About the Debtors
According to the Debtors: “Medly is a full-service, digital pharmacy that offers free prescription delivery for all types of medications."
Corporate Structure Chart
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