Distressed Companies Received £1bn Lifeline

Since the start of the latest recession a unique group of UK turnaround investors have found cause to invest almost £1bn in distressed companies over the last 12 months, according to research undertaken by KPMG.

KPMG Restructuring Director, Will Wright said:

“We have seen a new breed of investor come to the distressed acquisition market since the beginning of the downturn. Historically, distressed investors acquired companies out of administration to salvage what remained. While the traditional model still exists, we have seen small investors in the UK looking to step into businesses while they are still solvent. This change in approach is driven by a need to step into a distressed situation before it unravels into insolvency and precious value is destroyed.”

“The UK turnaround investor community, which has emerged in the past few years, differentiates itself from the traditional distressed investor model by rescuing companies earlier; 76% of firms surveyed have completed a solvent acquisition in the last year. There are also key differences with the typical private equity investment model where – rather than suffer possible delays created by due diligence and committee decision-making which could prevent a solvent business rescue – many UK distressed investors can write a cheque on the spot.”

Several key findings from the research are:

• There are around 60 specialist turnaround investors in the UK
• The group has completed 73 deals in the past 12 months
• Over £940m has been invested in UK headquartered businesses in the past 12 months
• 76% of turnaround investors have completed a solvent acquisition in the last 12 months
• 80% of turnaround investors are seeing more opportunities than a year ago

When asked more about he individuals in the UK turnaround investors, Mr Wright continued:

“The funds themselves are typically set up by small groups of high net worth individuals, often with a background in restructuring, who understand that timing is crucial in business rescue. There will always be an inherent block in identifying acquisitions targets, in that directors find it difficult to admit to the severity of their problems until it is too late but 80% of the investors we surveyed said they were seeing more opportunities in the next year.”

“Deals such as Gardner Aerospace, acquired last year by Jon Moulton’s Better Capital, and structural steelworkers Robinsons, acquired by Jamie Constable’s RCapital (both rescue transactions avoiding insolvency) show that the community is prepared to put its cash to work. It is difficult to estimate the total fire power of the UK distressed investor community as their style is to tap into their network of contacts when the right deal comes along. However, with nearly a billion spent in the last year and the community seeing more opportunities in the year ahead, we’re certainly looking above the billion mark.”

“With such a large pool of cash to invest, this emerging breed of specialist investor is good news for business rescue in the UK.”