Restructurings of Private Equity-Owned European Companies Could Double Over Next 12 Months, According to Survey
A fresh wave of restructurings of private equity-owned European companies is expected over the coming year, according to a new survey by AlixPartners, the global business-advisory firm. Two-thirds of more than 100 global restructuring experts surveyed expect up to twice the volume of such restructurings over this coming year compared to the last, while a further 16 percent believe the volume will be even higher than that.
Sectors expected to undergo the most restructuring activity over the course of the next year are the European commercial real estate and automotive industries, with one in four experts naming these sectors as the most likely for company and financial work-outs. The expectations for the European automotive industry are twice as severe as expectations recorded in a similar AlixPartners survey last year.
The AlixPartners survey a year ago found that 54 percent of respondents believed the retail industry was in the most danger of being hardest hit by restructurings, closely followed by 37 percent of respondents who named the financial sector as most at risk. AlixPartners’ current survey shows that the focus of concern has shifted, with only 10 percent of experts now concerned about the retail and consumer sectors and 7 percent worried about the financial services industries.
Meantime, 8 percent of experts expect that the European building and construction industries will be hardest hit by restructurings over the coming year. And European manufacturing generally is seen by 18 percent as a sector that may undergo severe financial and operational changes.
The grim outlook for manufacturing is reflected in a prediction by 31 percent of respondents who said that the shape of European recovery will be U-shaped – long and slow – while a further 41 percent predict a bathtub-shaped recovery – a very long and very slow recovery.
Peter Fitzsimmons, co-president of AlixPartners, said: “As we enter what the vast majority of restructuring experts believe will be at best a long slow recovery in Europe, time may be running out for certain private equity-owned businesses – including for those outside Europe with portfolio companies in Europe. Short- and mid-term flexibility by bank lenders may have kept many businesses afloat over the past year while others, including many private equity-owned firms, may have been hanging on to the hope that credit conditions would suddenly improve.”
“The hour is approaching for many companies all over the world where it will simply be a case of either operational restructuring or face the risk of failing,” said Lisa Donahue, a managing director of AlixPartners and co-lead of the firm’s turnaround and restructuring practice. Donahue added, “Addressing the cost and operating fundamentals as early as possible gives companies more options and flexibility, whereas waiting only compounds the damage and causes tough decisions to be forced upon management. In the short- to medium-term, credit conditions don’t look set to suddenly change for the better and tough decisions will need to be made for many of those highly geared businesses if their operating models are not designed for the long haul.”
The AlixPartners survey found that 60 percent of restructuring experts polled believe access to credit and loans is the key incentive to improve the European economy, followed by cuts in direct taxation, an approach mentioned by 48 percent of experts.
The findings are based on a survey of more than 100 turnaround and restructuring professionals including specialist bankers, lawyers and corporate financiers from Europe and North America.
AlixPartners is a leading global business-advisory firm offering services across four main disciplines – operational performance improvement and strategic consulting, financial restructuring and bankruptcy reorganization, litigation consulting and financial advisory services. The firm’s expertise is in helping clients anticipate, evaluate and successfully resolve urgent, high-impact business challenges in an increasingly complex legal, regulatory and economic landscape. Drawing on the experience of more than 900 employees from 14 offices across North America, Europe and Asia, the firm commits small teams of seasoned professionals to deliver results when it really matters. For more information, visit www.alixpartners.com.