Turnaround Finance Deals

In almost all turnaround finance deals we need to inject new cash to make the turnaround successful.

We have listed some illustrative turnaround finance deals where we have either:

  • Advised or assisted clients to raise finance, or
  • Acted as investors ourselves

Hospital Group

A specialist private hospital group became distressed as a consequence of the extremely long debtor payment cycle.

The debtors were made up of:

  • Individuals
  • Government (NHS)
  • Medical insurance funds

This mix of debtors made it very hard for a third party to fund.

TMP assisted as follows:

  • Clarified and simplified the financial information, to make it easy and quick for a lender (as an outsider) to understand, and see the potential security cover
  • Made proposals to key lenders (already known to TMP) that TMP thought would be most likely to conclude a deal
  • Negotiates an acceptable deal for Abbey

Railway Labour Supplier

A major supplier of short term contract labour to major construction projects (such as railways) in the UK was insolvent. We sourced, structured and negotiated the pre-packaged administration buy out deal.

We introduced and implemented an asset based lending funding deal.

We act as minority equity partners with the buy-in management team.

Pension Company

We acquired a pension business out of administration (name withheld out of confidentiality agreement).

The company has become insolvent, primarily because of an ongoing shareholders dispute and the company was finding it hard to write new business.

We invested our own partners’ funds in the deal and put the business into “run-off”.

We enjoyed a rapid and profitable return of our investment and are now “passively” running the pension book off and generating predictable annual profits.

Telecoms Business

The name and details of this business are withheld for commercially sensitive reasons.

We were introduced to a telecoms business by a contact of TMP, who was looking for a £20m funding line, to prevent the business going into insolvent administration.

The background was:

  • One of 3 suppliers of and manufacturers of globally saleable security technology.
  • Effectively owned by a major venture capital firm who had invested £200m but its fund could not (for internal reasons) invest any further funds.
  • If the business could not obtain £20m of fresh funding it would go into an insolvency procedure.
  • The business had a very significant operating cost base but was essentially “pre-revenue” with only modest revenue opportunities.  However, if the business could be adequately funded, there was considerable revenue opportunities to make the business profitable.

TMP got involved as follows:

  • Introduced the business to 2 funders
    • A distressed private equity firm, that was connected to TMP, and
    • An asset based lender
  • Negotiated an administration buy out deal from the administrator.  This was not a “pre-packaged” administration buy out deal, as by the time we got to grips with the opportunity, the business had already gone into administration.  Therefore, we were on a very short time scale.  The final buy out deal structure was:
  • Equity

    The private equity firm

    • Acquired 100% of the newco equity for £1, and
    • Provided a funding facility of £300k to the administration to fund a 14 day period to allow for redundancies to be made.
    The facility of £300k was secured on the debtors generated during the (short) period in the administration order.
  • Debt

    TMP assisted in raising an asset based lending of £2m, secured on debtors.
    The outcome was that:
    • The private equity firm listed the business on the main board of the London Stock Exchange, 5 years later for a market capitalisation of £200m.  Unfortunately the recent market collapse in 2008/9 meant that its current market capitalisation had declined to approximately £50m (2010).
    • However, the underlying performance remains positive (relative from its original starting point).  The key statistics (2010 year end):

Revenue

 

£98m

Operating Profit

 

£96m

Net Asset Value

 

£43m

Cash and Equivalents

 

£9m

 

In summary, this distressed restructuring and investment is an excellent illustration of how a small amount of money (and therefore risk) can buy a lot of value.

Property

We acquired, with partners’ funds, a distressed 11 story building in Cape Town, South Africa.

We acquired the building at a good entry price due to a distressed and motivated seller.

We made the investment yield positively (i.e. generated immediate cash flow) by installing a key corporate tenant out of a restructuring we were involved in.

The property has doubled in value in 5 years. Taking account of the positive effect of the leverage our original investment has a return of over 200% over the 5 year period.

Corporate Motorsport - 100 percent shareholders

Corporate Motorsport

In mid 2005 we spotted a distressed investment opportunity where we could buy a world class fleet of single series from the Barber Dodge Series in USA which acted as the feeder series to Champ Cars. Within a few weeks we had visited the US, put together a game plan and bought the series.

We acquired:

  • 27 race cars
  • A very extensive range of spares.
  • The manufacturing rights to build the cars.

The commercial logic of the investment was that:

  • We could see an unsatisfied demand and that there was no competition in South Africa – and indeed very little competition outside the UK and the US.
  • Our entry price was extremely was extremely low – meaning that if the business failed to met our expectations we could sell the fleet individually for the amount we invested. Therefore there was a reasonable prospect of recovering 100% in a distressed situation.
  • On the upside – the business had significant potential, which we felt we could build over 3 to 5 years.
Corporate Motorsport

We have now been running the business since January 2006 and we have (at the time of writing January 2007) achieved the following so far.

  • Set up great facilities, workshops, event teams and marketing divisions in Cape Town and Johannesburg, South Africa.
  • Generated significant sales from the SA market and the international market
  • Created a sizeable client base with the potential to generate cash and profitable returns with potential saleability.

Turnaround Fund

TMP partners are minority investors/partners in Kelso Place Asset Management’s (“KPAM”) first and second turnaround funds. KPAM is a 28% investor in TMP.

The KPAM funds have made a number of investments in both distressed and underperforming businesses with TMP as a minority partner, where TMP has worked closely with KPAM as the restructuring advisor.

So far there have been 6 investments with KPAM as a partner. Each of these investments have all been extremely successful so far with very high returns on the exits that have been achieved.

KPAM won the Accountancy Age Turnaround Awards and The Turnaround Finance Group’s Awards in 2003 and 2005.