Turnarounds still struggling to take off

Vidur Sachdeva
10 June 2015

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Despite the challenging post-crisis environment, the turnaround space has remained barren with timid levels of dealflow. Vidur Sachdeva reports

According to unquote" data, the greatest number of turnaround deals in Europe in any given year was recorded more than 20 years ago – in 1994 – when 19 such transactions were reported. Only in 2009 did turnaround deal volume come close to that figure, with unquote" data recording 18 such transactions across the continent that year – falling short of 1994's total by one transaction.

Fast forward five years to 2014 and private equity investment in the turnaround space declined to just seven investments – 38% of 2009 levels. In the five years to the end of 2014, 39 turnaround deals were completed in Europe; far below the 61 reported in the previous five-year period to the end of 2009. In other words, dealflow over the last five years simmered down to approximately 60% of the dealflow reported in the five years to 2009.

The picture is even gloomier when looking at the value of these deals. The aggregate value of turnarounds in the five years to 2014 totalled €863m; just 18% of the previous five-year period to the end of 2009, which totalled €6.3bn, largely due to the three €500m+ transactions reported in 2005, 2006 and 2008. As a result, the average size of turnaround deals in Europe shrank by nearly 71%; from €79m in 2005-2009 to €23m in 2010-2014.

UK slow down
Drilling down by country, the decline in dealflow has been noted across the board. Still, the largest portion of this decrease can be attributed to the slowdown in the number of turnarounds in the UK. Five years ago, in 2010, the country accounted for almost seven out of every 10 turnaround deals in Europe. By contrast, the UK was home to approximately four out of every 10 such deals recorded throughout the continent in 2014 – dragging down overall dealflow in the turnaround space by 41%. Similarly, despite accounting for 11% of turnaround dealflow in the five years to 2009, Italy failed to report a single such transaction during the following five years.

In terms of sectors, the industrial and consumer segments are traditionally home to the lion's share of Europe's turnaround dealflow. In 2010, for example, these sectors accounted for all turnaround deals in Europe. That year, the industrial sector saw 12 such transactions while the consumer sector accounted for another seven. In 2014, however, the industrial and consumer sectors reported just five and two deals, respectively.

Finally, when analysing the numbers in terms of vendor types, unquote" data reveals the two most popular vendor types in 2010 were family/private vendors - with five turnaround investments – and administrators – with six turnaround investments. Combined, these two vendor types accounted for 11 of the 12 turnarounds in 2010. By 2014, however, family/private vendors generated just one transaction in this space, while assets bought out of receivership were down to four.

Back in 2013, unquote" reported on the gloomy state of affairs in the turnaround market. At that time, the number of turnaround deals completed by GPs had reached a five-year low. Two years later, the level of private equity investment in distressed assets still remains timid.