Partner Article

Turnaround investors toe-to-toe with trade buyers as rescue deal opportunities increase

Turnaround investors are facing stiffer competition from trade buyers as the improving economy starts to put M&A back on the corporate agenda, according to new research from KPMG. In the wake of deals such as the sale in March of North East based Thompsons builders merchants to Grafton Merchanting and of Little Chef’s sale to the Kuwaiti-owned Kout Food Group, more than half (56%) of turnaround investors questioned by KPMG consider trade buyers to be a greater threat in the hunt for stressed or distressed assets than they were twelve months ago. KPMG’s research also indicates that the number of turnaround opportunities coming to the table is up on last year; a total of 63% of investors claim to have seen more opportunities over the last 12 months than in the previous year. Despite this, however, the number of completed deals is down, from 95 in 2011/12 to 65 in 2012/13. Mark Firmin, who leads KPMG’s UK regions restructuring practice from the North, commented: “Turnaround investors are an increasingly important part of corporate restructuring activity as the market becomes more sophisticated. There are numerous examples of these specialist investors – who have a combination of liquid resources, turnaround skills and risk hungry appetite – acquiring businesses that would have otherwise failed and steering them back to health. “However, after five years of recession and retrenchment in the M&A market, we are now starting to see strategic trade buyers dip their toes back in the water as they embark on plans for sustainable growth. Having battened down the hatches during the economic storm, many buyers are now sitting on significant war chests, and this renewed confidence is beginning to tempt them back on the acquisition trail. “We are also finding that their appetite for risk is increasing - they are more willing to take a chance on an under-performing company to help achieve their growth plans, rather than hunting for that perfect solvent target on which to spend some of their dormant cash. This may be because many companies under stress are in that position due to funding issues, rather than poor trading. Acquisitive trade buyers are confident that they can fix such issues themselves, making rescue deals a much more attractive option than they once were.

“While it is early days in the recovery, we foresee more rescue deals being undertaken by corporates over the next 12 months. In competing for rescue deals, our advice to the turnaround community is to focus hard on your existing core investments, and look at those opportunities that can be bolted in to your portfolio most easily.”

This was posted in Bdaily's Members' News section by KPMG .