- More than half of turnaround investors view trade buyers as a greater threat than 12 months ago, according to research from KPMG
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 including Little Chef’s sale to the Kuwaiti-owned Kout Food Group and Hydrodec Group plc’s recent acquisition of OSS Group Limited, 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 deals in 2011/12 to 65 in 2012/13.
Will Wright, restructuring partner at KPMG, commented: “What is clear is that turnaround investors are an increasingly important part of corporate restructuring activity as the market become 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 economic recession and retrenchment in the M&A market, we are now starting to see strategic trade buyers begin to 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.
“More interestingly, however, 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.”
Will Wright continued, “One respondent to our survey remarked that the majority of deals which his business had lost out on had gone to a trade buyer on much better terms and pricing. This is where a corporate has a distinct competitive edge over a typical turnaround investor. Their strategic rationale to acquire, coupled with access to cash reserves, means they can move swiftly to snap up their target.”
He concluded, “While it is early days in the recovery, we certainly foresee more rescue deals being undertaken by corporates over the next 12 months. In competing for rescue deals, our advice to the turnaround community would be to focus hard on your existing core investments, and look at those opportunities that can be bolted in to your portfolio most easily.”
The pool of specialist turnaround investors operating in the UK continues to increase. KPMG has identified 96 operators who are active in this space, up from 75 last year.
Despite an increase in the overall number of opportunities for investment, the group remains selective on which companies they seek to support. While the investors identified an average of over 170 opportunities in the last year, they typically only followed up around a third of these (32 on average – down from 48 in the previous 12 months).
A total of 77% of investors believe that debt portfolio sales will lead to more opportunities coming to the table in the next 12 months.
Notes to editor
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About the research
KPMG surveyed 27 of the largest turnaround investors, based in the UK, on acquisitions they have completed in the past 12 months; their views on acquisition opportunities in the next 12 months and their investment capacity.
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.