‘New breed’ of investor is coming to the rescue of distressed companies

Research found the UK’s 60 leading specialist distressed situation investors have completed 73 deals in the past 12 months, investing about £940m into companies.

KPMG said the turnaround scene has seen the emergence of a “new breed” of investor, prepared to take pre-emptive action to salvage a company before it goes bust.

More than three-quarters of the investors claimed to have completed a solvent turnaround in the past 12 months.

KPMG’s Leeds-based head of restructuring in the north, Mark Firmin, 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 stepping 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 turnaround investor community, which has emerged in the past few years, differentiates itself from the traditional distressed investor model by rescuing companies earlier. There are also key differences with the typical private equity investment model which isn’t normally capable of operating at the pace required for the solvent rescue of a distressed business – many distressed investors can write a cheque on the spot.”

The research also found 80 per cent of turnaround investors believe there are more opportunities than a year ago.

Mr Firmin said: “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 acquisition targets, in that directors find it difficult to admit to the severity of their problems until it is too late.”