Private equity investment will play a much bigger role in restructuring deals in 2018 than it has in previous years industry specialists have predicted, with banks not expected to play a leading role in helping fund restructuring transactions this year, despite an upsurge in demand.
According to a survey of over 200 restructuring professionals, 81 per cent of respondents believe that funding streams will narrow, despite an overwhelming 90 per cent expecting the number of restructuring deals to increase over the next 12 months.
The research conducted by Gateley Plc, the legal business of law-led professional services group Gateley, at its recent national Restructuring Conferences, reveals that private equity, debt funds and asset based lending are expected to be the most likely sources for turnaround funding, with 48 per cent, 46 per cent, and 42 percent of those questioned highlighting these respectively. 92 per cent were of the opinion that private equity investment will play a bigger role in restructuring deals in 2018 than it has done in previous years.
However, experts were split on which sectors they think will be most involved in restructuring deals over the course of the next year, with just over half (54%) highlighting the retail sector, 23 per cent hospitality and casual dining, 13 per cent automotive and 10 per cent manufacturing. Although delegates did not pinpoint the construction industry as a sector of concern, recent events, including the collapse of Carillion and the strength of the construction supply chain more widely, have challenged perceptions as to the resilience of the sector in 2018.
Brendan McGeever, Restructuring partner at Gateley Plc, commented: “With the country’s economic growth set to slow to 1.4 per cent in 2018, inflation rising and dampened business investment since the Brexit vote, it’s unsurprising that an increase in restructuring is expected.
“Low confidence in the retail, hospitality and automotive sectors reflects these wider macro-economic pressures. Changing consumer behaviour and reduced spending is a direct result of sluggish wage growth and a squeeze on household spending power. Many retailers in particular are struggling with a complex and rapidly changing environment at the moment and this is only set to intensify in 2018.”
Despite this, 75 per cent of respondents felt positively about the current economic outlook, optimistically stating that the country is ‘more resilient than in 2008′ and that the current challenges ‘create opportunity’. However, when asked about how optimistic they feel about how Brexit will play out, that number dropped to 54 per cent, with 46 per cent feeling pessimistic about the impact of the UK leaving the European Union.
McGeever continued: “The majority of our conference speakers and panellists were not all doom and gloom; a well-balanced and resilient business model should be able to capitalise on the opportunities that will arise from a downturn in the economy. It was agreed that the businesses that seem to be performing well are those that are most adaptive to change rather than those that are following more outdated models and which are seen to be suffering most at the moment.”
Gateley Plc hosted two conferences which brought together professionals from across both the North and the Midlands’ business communities to discuss turnaround, change management, pricing and funding for business and what macro-economic challenges there might be for their regions in its ‘Restructuring Conferences: Navigating complexity, change and uncertainty’, which took place in both Manchester and Birmingham. Speakers at the Northern Conference included the Chief Economist of the Northern Powerhouse Partnership, Andrew McPhillips, while the Midlands Conference hosted the director for exports and investment for the Midlands Engine region at the Department for International Trade, Simon Hall.