Getting the turnaround funding markets moving
Turnaround Management Association (UK) holds industry discussion with Private equity investors and lenders hosted by FRP Advisory
Bryan Green, President of TMA (UK), says there are a number of private equity and distressed fund investors that have the cash and appetite to invest in transactions. He said: "For many PE and distressed funds the challenge isn't finding the cash to do the deal, it is the ability, or lack thereof, to leverage the transaction with assets. This means that more money has to be invested at the outset - meaning that the stakes are very high at day one and for a transaction to succeed in this market, all stakeholders must be working together."
Adrian Doble, partner and head of restructuring at FRP Advisory and Director of TMA (UK), echoes this sentiment. He comments: "There was a time when PE investors were seen as asset strippers in distressed situations but this has changed. Nevertheless, there is still room for mistrust, doubt and fear - existing management and funders are uneasy and the incoming PE firm is facing an uphill battle unless already well connected with a reputation for integrity."
"Over the past five years we have moved a long way forward, but one of the things we're trying to do through the TMA is to improve the understanding of how PE and distressed funds can work in a turnaround situation. The role that these investors can play, particularly in the current climate, is vital and so it's crucial we re-establish them as a lender to a broader range of businesses.
"There are some highly inventive deals being done in this space - ultimately more companies could be saved if we could get PE and distressed funds working more closely with businesses and vice versa."
An increasing presence in these transactions is the turnaround manager. A relatively new role in the UK, the turnaround manager is proving to deliver reassurance to investors, both in terms of guiding the business effectively through a transition and commercially adding value.
Charles Bodie, Partner at Kelso Place Asset Management, adds: "As a PE turnaround firm it is essential that you bring more than just investment to the transaction. You have to bring expertise and experience that will assist the company during the turnaround phase."
"We frequently take on discrete projects as a part of a restructuring process to allow the existing management team to refocus on the day job. This approach, together with crucial equity funding has a transformational effect. The challenge for many businesses in a turnaround situation is that the company is no longer cashflow positive, which combined with a debt burden and a poor balance sheet, only serves to hamstring the business. When there is no capital expenditure - it cannot invest in new skills, techniques or markets to dig itself out of a hole.
"PE funding, unlike debt funding, is permanent equity in a company - creating capital that improves the balance sheet and frees cash to fund the necessary restructuring and reinvestment in the business."
Bryan Green believes there will be an increasing number of PE funded turnaround transactions in 2012, particularly cross-border deals in Europe.
"For many firms, conducting transactions in Europe is challenging due to the different jurisdictions in play, but if you have the capability there is a huge amount of opportunity. We will certainly see a rising number of turnaround deals being financed through PE and distressed funds - the key to the success of these transactions will be ensuring all stakeholders truly collaborate around a common objective."