Private Equity Investment To Help In Turnaround And Restructuring

As the banks continue to reduce levels of lending, it has been revealed that private equity investment will play a bigger role in funding turnaround deals and restructuring packages in the next two years.

Companies undergoing restructuring need finance for short-term commitments and to cover the turnaround costs, including working capital for trade creditor and interest payments or professional fees and even investment in new technology or systems, so access to funds is vital in this process.

Traditionally, firms in such a position would go to the banks, but according to a recent survey, 91 percent of the insolvency practitioners questioned said that alternative sources of finance would become more prominent, which is a 39 percent increase on last year’s survey results.

In addition, almost three quarters of those polled believe that funding from traditional sources, such as high street banks, would pose a significant challenge for businesses.

This is in direct contradiction to last year’s results, when 94 percent of those questioned believed that bank funding would increase to match the greater level of support needed by the turnaround and restructuring market.

The turnaround professionals surveyed were almost split 50/50 in regards to the number of potential restructuring deals in the next 12 months, with 45 percent of those surveyed believing it would decrease. However, 73 percent of respondents agreed that more innovation would be required in the market over the coming months.

Retail, leisure and hospitality, healthcare and commercial property are the sectors most likely to be involved in restructuring deals over the course of the next two years, according to the poll.

Tim Close is an accountant specialising in business insolvency, debt recovery and business rescue.

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