Technical
24 Jan 2012

Turnaround for turnaround specialists

Economic downturns usually offer good opportunities for investors to snap up assets cheaply and create real value by effecting operational turnaround for stressed companies.

Economic downturns usually offer good opportunities for investors to snap up assets cheaply and create real value by effecting operational turnaround for stressed companies.
 
This recession has been different though and for turnaround specialists activity has been surprisingly slow. This is down to a number of reasons. Financial management in businesses is generally better than it has been in the past so companies have dealt with the issues that would otherwise have led to insolvency.
 
Low interest rates have meant that banks have been able to give payment holidays, allowing businesses to simply service the interest on the debt. And, unlike in previous downturns, where the banks have found themselves in control of distressed companies, they have made the decision not to sell them on, largely because there is too much bad debt and not enough capital to shift it off in write-downs.
 
Private equity firms and corporates are also reluctant sellers, especially at a time when they perceive the EBITDA multiple to be depressed thanks to macro-economic conditions.
 
It’s not all doom and gloom for turnaround specialists though. Over the last year, both corporates and banks have started to use them to fix problems in situ and, while nobody is predicting a huge upturn in the market for them in 2012, there are good opportunities on the horizon for bold firms.   

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