About turn

Turnaround investors have had another chastening year, despite their high hopes. Garry Wilson discusses the sector's prospects for 2011.

As a turnaround investor, what did you expect would happen in 2010 at the start of the year, and have those expectations been realised?
In our 31 December 2009 report to LPs I said “I believe 2010 will see an increased level of restructuring activity and deal completions.” I was wrong again but I have learned that predictions can be very difficult, especially about the future.

So how active have you been in 2010 on the new deals and exits front? How does this activity compare to last years?
If things go to plan, in the next few days 2010 will see five new acquisitions for Endless, five exits and three refinancings – a similar level of activity to 2009 but still not as busy as we would like to be. Opening an office in London in October has had an immediate effect on our business, though, as we start to compete with firms based in the capital.

Do you feel that this is a good time to be a specialist turnaround investor? Why?
I love what I do. Every year is a great time to be in turnaround. However, we haven’t had the pain of the recession yet. This year will be a very tough time for private equity portfolios and turning businesses around will be tough. Cheer up – the worst is yet to come.

What has been the most frustrating thing about turnaround investing during the last 12 months?
The gap in expectations between vendors and buyers has meant less deals have happened.

Are these barriers to deals likely to remain in place in 2011, or are there signs that the market could be opening up?
Existing stakeholders are more supportive than ever before, meaning new investors have limited opportunities. Unfortunately, banks, private equity houses and management teams all deserve credit for taking a long term approach in this downturn. The banks’ portfolios are starting to mature and some businesses are coming to market again. Sadly it tends to be those businesses that have gone from bad to worse and are even less attractive now than they were two years ago.

In 2008 and 2009, several generalist private equity firms were eager to present their turnaround credentials. Has this died down recently and are turnarounds still seen as a “hot” area by the wider market?
I haven’t seen any mainstream private equity house enter the turnaround market other than when they have had to deal with problems in their own portfolio. The move is actually in the other direction, as turnaround houses search for deployment in the mainstream.

The relationship between limited partners and turnaround houses has always been a complex one, given the small tickets and opportunistic deployment of capital among other reasons. How do LPs view the asset class now, two years after Lehman?
Many people spent 2009 looking at the sector and have concluded there is simply not a big enough demand from GPs to warrant a special focus by LPs other than on distressed debt or in the US market. The European market has different insolvency legislation in every country, making it difficult to act Europe – wide. I have seen some German turnaround investors have torrid experiences in the UK recently.

If you could have one wish for 2011, what would it be and why?
The promotion of Leeds United to the Premiership. Now that really would be a great turnaround.