Private equity to take leading role in funding increase in turnaround deals
Private equity investment will play a much bigger role in restructuring deals in 2018 than it has in previous years industry specialists from the Midlands have predicted, with banks not expected to play a leading role in helping fund restructuring transactions this year despite an upsurge in demand.
According to a survey of over 100 Midlands restructuring professionals, 85% of respondents believe that funding streams will narrow, despite 90% expecting the number of restructuring deals to increase over the next 12 months.
The research conducted by Gateley Plc, the legal business of law-led professional services group Gateley, at its recent Midlands Restructuring Conference reveals that debt funds, asset based lending and private equity are expected to be the most likely sources for turnaround funding, with 58%, 50%, and 43% of those questioned highlighting these respectively.
Ninety-three per cent were of the opinion that private equity investment will play a bigger role in restructuring deals in 2018 than it has done in previous years.
However, experts were split on which sectors they think will be most involved in restructuring deals over the course of the next year, with the retail sector most cited (63%) and the hospitality industry following with 30%.
Although delegates did not pinpoint the construction industry as a sector of concern, recent events, including the collapse of Carillion and the strength of the construction supply chain more widely, have challenged perceptions as to the resilience of the sector in 2018.
Dan French, restructuring partner at Gateley Plc, commented: “With the country’s economic growth set to slow to 1.4 per cent in 2018, inflation rising and dampened business investment since the Brexit vote, it’s unsurprising that an increase in restructuring is expected.
“Low confidence in the retail and hospitality sectors reflects these wider macro-economic pressures. Changing consumer behaviour and reduced spending is a direct result of sluggish wage growth and a squeeze on household spending power. Many retailers in particular are struggling with a complex and rapidly changing environment at the moment and this is only set to intensify in 2018.”
Despite this, 70% of respondents felt positively about the current economic outlook in the region, optimistically stating that the country is ‘more resilient than 2008′ and that the current challenges ‘create opportunity’. However, when asked about how optimistic they feel about how Brexit will play out, that number dropped to 50%, with the other half feeling pessimistic about the impact of the UK leaving the European Union.
French added: “The majority of our conference speakers and panellists were not all doom and gloom; a well-balanced and resilient business model should be able to capitalise on the opportunities that will arise from a downturn in the economy. It was agreed that the businesses that seem to be performing well are those that are most adaptive to change rather than those that are following more outdated models, which are seen to be suffering most at the moment.”
