On Sept. 1, 2009, payment processor Cynergy Data LLC began proceedings under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court, District of Delaware. Under the filing requirements, Cynergy entered into an asset purchase agreement (APA) with bidder Cynergy Holdings LLC, an affiliate of The ComVest Group. ComVest is a private investment firm that provides debt and equity solutions to middle market companies, which in essence means buying all of a company's assets. Sale of assets is accomplished via open auction over a 60 to 90 day period. Auction parameters are determined by the court, which decides what companies are eligible to submit bids, the length of the bidding period and the ceiling on bid amounts.
"The way a Chapter 11 works - in a good case - is that after the petition is filed you have your stalking horse bidder [required in some bankruptcy cases to initiate further bidding proceedings] setting the stage to open up a competitive bidding environment," said Randy McCoy, Operating Partner at ComVest. "When we were identified as that party, in which we were selected by Cynergy as the most viable candidate to acquire its assets, an APA was negotiated.
"A judge has already heard motions to continue operations uninterrupted and keep all the residual payments flowing in conjunction with the APA. Now we look forward to closing as soon as possible so we can start putting all our energy on the future."
The company is pursuing a sales process under Section 363 of the Bankruptcy Code, which may provide Cynergy a significant advantage: Section 363 allows the company to sell its assets "free and clear" of liens or other third-party claims to Cynergy's assets. The sales procedure is expected to enable the acquisition of Cynergy by ComVest or a more qualified entity offering a higher bid approved by the court. Cynergy Chief Executive Officer Marcelo Paladini hopes that, through this bidding process, the organization selected to acquire the company will enable the formation of a stronger business entity with less debt and greater economies of scale.
"I think the advantage of the 363 sales gives the company selected by the court the ability to not only take our assets free and clear, but it will give the new company - which will still be Cynergy Data - some breathing room to continue operations as we have for almost 15 years," Paladini said. "Given the challenges that we were facing, we felt the 363 was a great vehicle and the best way to come out of the process clean and free."
Rumors abound regarding ISOs, merchant level salespeople and processing partners working with Cynergy: The company will be unable to pay its future residuals; operations will stop; and the Chapter 11 filing will allow Cynergy, as well as its buyer, to invalidate any agreements to pay residuals. Paladini, however, is adamant that such perceptions are misguided.
"We have taken every step to maintain the company's operations as business as usual and are working tirelessly to secure the financing we need to continue the critical relationships we have with our vendors and ISOs," Paladini said. "And we are grateful for the continuing support of our employees, vendors, merchants and ISOs as we undertake our restructuring.
"Nothing has changed. This situation has put Cynergy on the road to greater stability and solvency, and we will continue making our payments on time. And as far as invalidating any agreements, any such action would be contrary to the historical values of Cynergy and to the future goals of the company."
McCoy said Cynergy's brand recognition, the loyalty of its ISOs and the support of the company's processing and banking partners was the main attraction for ComVest in purchasing Cynergy's assets. "We just believe that Marcelo has done an outstanding job over the past decade and a half building a business that services and supports sophisticated ISOs better than anybody else," McCoy said. "There's a lot of misinformation out there that ISOs' portfolios are at risk and are being used as collateral, but that is simply not true. Service continues today exactly as it was and will remain uninterrupted through the bankruptcy.
"ComVest values all those ISO relationships, and we expect to continue them all. We feel that we can take Cynergy to new places faster than it could move before. It is our hope to grow the company significantly, make sure ISOs are never impacted and preserve the values of an organization that has always been known for quality service, exceptional technology and great partnerships with ISOs."
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