a BSPEC and BSCM collaboration
Executive Summary
This report provides an in-depth analysis of the role that Private Equity plays in the Distressed space. To provide the reader with a better fundamental understanding, it starts with a comprehensive overview of Private Equity itself, covering its history and benefits as well as the typical structure of a fund and different fund types.
Moving towards the report’s main focus area, there follows a presentation of Distressed Private Equity and the dynamics of the corresponding market.
Diving deeper into the peculiarities of Distressed PE funds, the third section highlights important characteristics such as the targeted internal rate of return and success rates specific to Distressed PE funds, before explaining how those can be achieved by adding value to the distressed targets.
Getting technical, the next section examines under which circumstances a company is considered distressed, and how distress can not only be recognised but predicted before it occurs. In line with this, causes of distress are highlighted next, distinguishing between internal and external causes.
Section 5 explores the rationale behind Distressed investment opportunities, covering the most important dynamics responsible for its attractiveness.
The next section dives deeper into the technicalities of distress and outlines the key characteristics of Chapter 7 and Chapter 11 bankruptcy procedures respectively, showing each of their advantages and drawbacks before considering out-of-court restructurings as an alternative from the distressed company’s perspective.
Private Equity brings many unique benefits to distressed companies by improving their finances and operations as well as boosting their reputation. These and more advantages are presented in Section 7, before the focus shifts towards an in-detail explanation of the most common investing strategies implemented by Distressed PE firms.
When considering a distressed opportunity, it is of outmost importance to determine a fair price which compensates for the elevated risk inherent in the nature of the investment. For this reason, chapter 8 focuses on the valuation techniques used to price distressed companies.
Apart from the sole price itself, the PE acquirer also needs to decide on which way to invest in the target. This section highlights the most important strategies available to Distressed investors.
Moving on to a more practical perspective chapter 10 demonstrates how company can be turned around, covering all relevant aspects of operational and financial restructuring.
Rounding up the report, all the information provided before is applied in the Toys “R” Us case study, which investigates a rather unsuccessful turnaround attempt, raising awareness of the high risk that comes with Distressed investing.
The extensive report is available at the following link:
Comments are closed.