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2024 Special Situations Investor Survey
The Survey, which was conducted in December 2023, aggregates the views of UK-based investors focused primarily on alternative investments in the mid-market. These investors have a typical equity cheque size ranging from £10m to £100m per transaction and target returns of between 15% to 30%.
Welcome to this year’s Special Situations Investor Survey, sharing findings and insights on distressed deal activity over the last 12 months and into 2024.
ABOUT THE SURVEY
Highlights
The vast majority of investors saw an increase in special situations opportunities in 2023, with the increase in activity spiking in Q3 before subsiding slightly in Q4. This trend correlates with the 27% increase in UK administrations in the 12 months leading up to December 2023.
Despite this, and in line with 2022, the number of transactions completed fell below expectations, with low-quality, poorly constructed turnaround plans, and very accelerated timetables being the primary challenges cited by investors.
Opportunities in sectors exposed to discretionary spending (consumer, retail, leisure and construction) were unsurprisingly higher, together with low margin industries (industrial, automotive and engineering) where supply chain and inflationary pressures continued to cause problems for operators.
Special situation investors appear to have found fundraising in 2023 more challenging despite having a core focus on turnaround opportunities, suggesting that institutional investors may be reluctant to allocate significant capital to private equity in the current environment.
Looking forward to 2024, more than 70% of respondents are not optimistic about the outlook for the UK economy.
More than 80% of investors are expecting to deploy more or significantly more capital on special situation investments this year.
Highlights
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Mid-market special situations investors began 2023 with expectations of improved deal flow in terms of both quality and quantum compared to prior years. For many, 2023 was supposed to be the year when “zombie” companies would finally face their day of reckoning.
For many, 2023 was supposed to be the year when “zombie” companies would finally face their day of reckoning.
2023 IN REVIEW
Investors have also been forced to reset return hurdles given the higher cost of capital, with the majority of surveyed investors citing that the rise in interest rates has resulted in either a moderate or significant increase in deal return hurdles. This has meant that at the same time that quality opportunities have been lacking, the return hurdles for many have simultaneously increased, resulting in an implied reduction in transactions completed.
Economic challenges also contributed to a difficult fundraising environment for private equity in 2023, with the special situations community not immune. As of September 2023, private equity firms raised approximately $509bn globally through 620 fund closings, which was only 46% of the prior year’s total funds raised.*
https://www.wsj.com/articles/private-equity-faces-gloomy-fundraising-forecast-for-2024-5951e96b
77%
Critically, this did not translate into significantly more capital being deployed as the quality of opportunities being marketed was typically lacking as was the case in 2022. One UK investor stated:
The vast majority of opportunities seen during the year have been relatively low quality and not suitable to a financial investor.
We have seen an increase in businesses coming to market but most were not suitable to turnaround investors as the least investible companies were typically the ones experiencing difficulty.
– Callum Greig, Managing Director
70%
80%
Flat gross domestic product (“GDP”) growth, rising unemployment, numerous homeowners switching to variable rates and the increased (but hidden) tax burden offsetting falling inflation and limited interest rate movement are expected to influence special situation opportunities.
Investors expect the sector themes in 2024 to remain broadly unchanged as the existing areas of stress continue to negatively impact economic performance.
We expect further economic turbulence to create a platform for more special situation opportunities this year.
are not optimistic about the UK economy in the near term
70%
We anticipate an increase in the volume of special situations opportunities as headwinds remain strong and sponsors are under more pressure to divest.
– Callum Greig, Managing Director
2024 OUTLOOK
of investors expect to deploy either moderately more (c.50%) or significantly more (c.30%) capital in the next 12 months
80%
Which sector(s) do you expect to see increased special situations opportunities in 2024?
14%
14%
10%
10%
9%
8%
7%
28%
Retail
Consumer goods
Automotive and parts
Industrials
Construction
Engineering›
Real estate
Other
A number of factors are expected to create increased levels of distressed M&A activity, with unsustainable debt servicing costs and failed refinancings accounting for more than 40% of Survey responses.
What factors will be more likely to contribute to the increased level of special situations investment opportunities in the sector(s) you’ve predicted to be most active?
Unsustainable debt servicing costs
23%
Inability to raise funds or refinance existing debt
20%
17%
Cost inflation
16%
Customer demand
6%
Operational issues
18%
Other
We expect activity will increase steadily in 2024 as financing conditions remain tough, stakeholders become less supportive and a low growth economy drags on company performance.
We also expect to see a rise in distressed activity for listed businesses, particularly small-cap companies, which will find it increasingly difficult to raise funding in the current environment and may require some form of insolvency process to transact given the additional complexities that come with trying to deliver solvent solutions quickly under the Takeover Code.
FTI Consulting’s Special Situations M&A Offering
We guide clients through challenging, complex and/or business critical issues, where specialist M&A expertise and advice is the key to delivering the optimal outcome. We provide the full suite of sell-side and buy-side M&A services for a range of clients across a broad array of sectors.
Accelerated M&A
Sale process with a truncated timetable due to a pending liquidity event or other precipitative factor such as unresolvable stakeholder conflict.
Accelerated funding solutions
Securing flexible capital for stressed or distressed corporates, where the funding requirement is more suited to special situation financiers.
Non-core exits
Sale process involving the exit of non-core divisions of large corporates or non-core investments sitting within private equity portfolios.
Strategic M&A support
Broad range of M&A support, including market mapping, sale process monitoring, retrospective sale process reviews, strategic option reviews and exit planning.
More
Turnaround & Restructuring
Supporting businesses through transformations, restructurings, insolvency processes, due diligence activities, valuation needs and a myriad of transactions.
Read the full insights from the 2024 Survey
Key Contacts
Ben Hughes Senior Managing Director
Special Situations M&A +44 (0) 7795 640 462 ben.hughes@fticonsulting.com
Matt Callaghan Senior Managing Director
Mid-market Restructuring +44 (0) 7815 187 649 matthew.callaghan@fticonsulting.com
Callum Greig Managing Director
Special Situations M&A +44 (0) 7532 607 753 callum.greig@fticonsulting.com
Stefan Maricic Senior Consultant
Special Situations M&A +44 (0) 2030 770 189
stefan.maricic@fticonsulting.com
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of investors saw an increase in distressed deal activity in 2023
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The vast majority of investors saw an increase in special situations opportunities in 2023, with the increase in activity spiking in Q3 before subsiding slightly in Q4. This trend correlates with the 27% increase in UK administrations in the 12 months leading up to December 2023.
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The vast majority of investors saw an increase in special situations opportunities in 2023, with the increase in activity spiking in Q3 before subsiding slightly in Q4. This trend correlates with the 27% increase in UK administrations in the 12 months leading up to December 2023.
Highlights
2 OF 2
Special situation investors appear to have found fundraising in 2023 more challenging despite having a core focus on turnaround opportunities, suggesting that institutional investors may be reluctant to allocate significant capital to private equity in the current environment.
70%
Looking forward to 2024, more than 70% of respondents are not optimistic about the outlook for the UK economy.
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Services
Private Equity Consulting
Our experts serve private equity firms and their portfolio companies to generate value, increase return on investment and mitigate risk throughout the deal lifecycle. We put your interests first, combining our deep industry and capability expertise to execute and deliver value quickly and collaboratively.
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Services
Private Equity Consulting
Supporting businesses through transformations, restructurings, insolvency processes, due diligence activities, valuation needs and a myriad of transactions.
More