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Turning Times

Date: 13 September 07 Publisher: INCISIVE MEDIA INVESTMENTS LTD

Turnaround specialists are drooling at the prospect of strained portfolio companies
overloaded with too much debt. After a period of historically low default rates, it looks as
if restructuring is about to come into play. Investment banks began gearing up for harder
times months ago with the well-publicised recruitment of experts in distressed debt. The
times seem ripe for those with experience in the challenged company arena to step into the
limelight. Rutland Partners has just closed a £322m fund to address ‘underperforming’
companies and Endless is in the process of raising its maiden institutional fund, targeting
£150m. The turnaround specialist is not having any trouble raising the cash.
UK lower mid-market players are not the only ones waiting to pounce. It is reported that
Cerberus Capital Management is eyeing up a bid for Esporta, the gym chain that has
recently gone into administration following a brief spell of ownership under private investor
Simon Halabi. Cerberus famously bought Focus DIY from its private equity vendors for
£1 earlier this year. But troubled Esporta is generating interest from mainstream private
equity houses too, with former owner Duke Street Capital, Blackstone and CVC all
reported to be circling. Esporta’s weak performance in the last six months has been partly
triggered by the flight of its senior management. The fact remains that it is a good business
and turnaround groups are going to have a fight on their hands from traditional financial
buyers to acquire it. The weight of funds which the latter have to invest means that no
asset is out of range, however distressed.
In the lead up to a fourth hearing of the Treasury Select Committee, scheduled for the
autumn, the next few months promise to be telling. By that time, the medium-term
impact of the sub-prime crisis on private equity and the subsequent atmosphere of risk
aversion will be much clearer.