Friday, 6 July 2012

It’s time to turnaround: a discussion of turnaround investing

Event: Building Business in the 21st Century
Date: Wednesday 4th July
Location: K&L Gates, One New Change, City of London

The world of turnaround investment is not a sector for the easily offended, a sector where a sizeable return on investment is sought above everything else. If a change, however large or disruptive it may be, makes financial sense then it is almost certain to happen. When International Law Firm K&L Gates LLP and Clearwater Corporate Finance hosted a breakfast seminar on Wednesday 4th July titled Building Business in the 21st Century, I learnt that a three letter acronym drives the sector. ROI is almost solely all that counts.

The event began with a presentation from Simon Peckham, CEO of Melrose plc, a listed company that looks to acquire businesses, improve them and realise the value created as a result. In simple terms their investment strategy is to buy, improve and sell businesses. Simon discussed Melrose, what it does and how it looks at prospective acquisitions. What became obvious from Simon’s presentation is that the turnaround sector is very much high risk, high reward, as demonstrated by the exceptional growth that Melrose has achieved.

Next up was Jon Moulton, Chairman and Founder of Better Capital. Jon is extremely well known in the City and has over 30 years experience of turnarounds. Better Capital recently hit the headlines with the acquisition of Jaeger, the high-end fashion brand and retailer. Jon certainly didn’t mince his words about the sorts of problems they come across within companies when assessing them. After summing up what Better Capital does Jon discussed the cut throat nature of turnarounds, his experiences and why many companies need to be reinvigorated. His insights into how his team goes about the process were incredibly interesting and his notion that they look for bad management challenged the preconception that private equity looks for strong management teams. In turnaround situations, Jon explained, this is one of the most straightforward things to improve and change.
After both of the speakers had finished the floor was opened to questions from the audience and Chris Smith, Partner at Clearwater and Jeremy Davis, Partner at K&L Gates joined the panel. A number of questions were posed ranging from how big a role does the existing IT infrastructure play on their initial investment decision and what the speakers’ thoughts were on service industries.

One of the most interesting points that arose was the pace at which change is implemented. If a company is taken over, the changes (management alterations, asset disposal etc.) required to reverse the company’s fortunes are implemented immediately, and both speakers emphasised that decisive action had to be taken within the initial weeks. Another interesting point was how far ahead turnaround specialists plan when looking at a prospective purchase. When initially looking to acquire a company, Jon claimed Better Capital would already have an idea of how or when it would look to sell the Company.

The turnaround sector is in an interesting position at the moment. While the economy experiences ongoing challenges, there are many companies that could be depressed in value and therefore perfectly poised for a takeover and turnaround, however the lack of finance available means caution is at an all time high and any acquisition is riskier than usual. Turnarounds are a fascinating period in the life cycle of a company and the rewards are there to be taken for those who have the skill, capital and nerve to act quickly. 

Thank you to K&L Gates for hosting a really enjoyable and thoroughly interesting insight in to a fast-moving sector.

The turnaround investing presentations given at the event can be found at this link:

Oli H

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