Investors and Private Equity Financiers

Why you need TMP

A very significant percentage of businesses funded by private equity (at some stage) become insolvent.

In fact in a recent study by the University of Nottingham and the BVCA estimates that between 50% - 75% investee companies go through an insolvency.

There appears to be 2 principal reasons.

  • Over leverage – especially in buy outs
  • Investee companies not reaching envisaged performance levels.

Private equity investors often take a remarkably passive role when an investee company runs into distress and insolvency. The logic behind this passivity is that they believe they are “out of the money”.  However, often there is a lot of value to be extracted out of distressed investments.

Example of restructuring a distressed investment

  • A venture capitalist invested £200m in an IT company.  The fund was closed and could not invest more in the business.
  • The company went in to administration.
  • With TMP’s guidance, a third party (unconnected) private equity investor acquired the business and assets for £1, then provided the Newco with £300k of secured loans. We then raised additional asset based lending of £2m.
  • 5 years later the new company was listed with a market capitalisation of £200m.
  • What is striking about this real case study is,
    • that the original investors did not do the deal themselves, and
    • how for very limited funds (and therefore risk) a new investor could acquire 100% of the business and assets.

When to call TMP

As always the earlier you call TMP the better – usually there are 3 key times to speak to us.

  • When you are making the investment – to identify how you can maximise your recovery if things go wrong.
  • As soon as you are aware that the investee company is financially distressed and may face possible insolvency.  This is very important as it allows you to potentially influence or dominate the outcome.
  • Whenever you see any potential distressed asset that potentially you want to acquire.  We can help you to structure that investment to minimise the cash out and minimise the  risk – done well this can produce spectacular financial results.

Why TMP?

  • We are a leading independent firm with an excellent track record both large and small deals.
  • Having acted as distressed equity investors many times ourselves, as principals we understand the issues.
  • We are independent and acting for you, this is important.
    • Some firms may have recurring relationships with banks – meaning they are motivated to recover funds for the bank rather than make you turnaround of your distressed investments work.
    • There is not always a conflict, but there are many circumstances where investors can feel badly done by, so it’s prudent to guard against this by choosing a leading independent firm.  If one of your distressed investee companies faces insolvency, and if there is a bank involved – you are going to need a specialist independent advisor.
    • Restructuring and insolvency often requires taking certain action against a third party – for example litigating against a major listed companies or a bank.  We have often come across cases where a firm cannot take action in an insolvency because they may be taking action against a client or key business relationship.  Therefore, working with a leading independent firm is often invaluable.
  • As leaders in the UK, developing and promoting turnaround finance we know all the key players in this field – personally.  Whether they are equity or debt providers, we know  their investment or lending sweet spots and what they are not.  This generally assists in deal making.
  • We provide a complete range of services. We have an extensive range of contacts in this niche sector.  This is very important as it is often crucial to getting deals done - efficiently and effectively.