Turnaround sector has £8bn to secure distressed businesses

THE UK turnaround investment sector, which has secured numerous high profile distressed business deals in the past year such as Sun European’s acquisitions of Bonmarché and Alexon and Better Capital’s acquisition of Jaeger, has £8bn of liquid funds available to it, latest research suggests.

KPMG, which carried out the research, the turnaround sector had become a prominent source of rescue cash and investors were keen to try and attract value from even the most distressed business.

Will Wright, restructuring director at KPMG in the Midlands, said: “Whilst there have always been turnaround investors, which are akin to private equity but differentiated by their ability to write a cheque on the spot and their background in corporate restructuring, the number has grown substantially since 2008.”

He said the firm had first carried out analysis of UK turnaround investors last year and had discovered the group numbered around 60 with around £1bn at its disposal.

“This year, we have seen an increase in the number of investors to around 75 but, moreover, have tracked an eight fold increase in investment potential, with the group telling us it has over £8bn of liquid capacity,” he added.

“A great deal of turnaround investor money is sourced from high net worth individuals; this dramatic increase in funds shows that the UK’s wealthy individuals are increasingly looking to invest in rescue deals.”

However, he said the research had also shown that the turnaround investor group was selective of which companies it chose to help.

While the investors identified an average of over 200 opportunities in the last year, they typically only followed up around a quarter of these, he added.

“There is cash out there for companies in distress but turnaround investors will only invest where they perceive there is some hope of rescuing some part of the business.  With the vast majority of the group (86%) expecting Eurozone conditions to worsen and more distressed investment opportunities to arise, we believe this group of investors is an increasingly important source of cash in the UK’s recovery story,” said Mr Wright.

The key findings of the research were:

–       Around 75 specialist turnaround investors are active in the UK (up from 60 last year);
–       The group has completed 95 deals in the past 12 months (up from 73 deals the year before);
–       The group has divested 42 businesses in the last 12 months;
–       The group has invested £1.1bn in UK-headquartered businesses in the last 12 months (compared with over £940m the year before);
–       69% of turnaround investors have completed a solvent acquisition in the last 12 months (compared with 76% last year);
–       94% of turnaround investors expect to see more opportunities in the next year;
–       86% expect Eurozone economic issues to deteriorate in the next two years.