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Private Equity Calling the Bottom, Too

Traders aren’t the only ones calling a bottom these days. According to a cover story on the latest issue of Buyouts, turnaround investors may be doing the same thing. These turnaround firms have been licking their chops for the past 15 months of the recession, waiting to pounce, as seller expectations on good but poor-performing companies had yet to come down.

That may be changing now, just as the trading values on public company stocks seem to be heading upward. One turnaround pro said that “season of denial” for high seller price expectations is finally coming to a close.

From the story:

An increase in turnaround activity, however slight, could signal an increase in conventional buyout deal activity, said Stephen Presser, co-founder and senior principal of Monomoy Capital, the New York-based turnaround shop investing from its $280 million debut fund. “Many turnaround shops seek to ‘time’ the bottom of the market—to buy a decent business for a low price at or near the bottom of its industry cycle with a straightforward thesis that the business will benefit from an economic recovery in a matter of months,” Presser told Buyouts. If prices have indeed bottomed out, the pace of turnaround deals could well grow rapidly.

Turnaround plays are often thought of as the original form of private equity: Take an ailing company from the harsh scrutiny of the public markets, gussy it up with best practices and a leaner business model, sell it off five years later and everybody wins.

Now, turnaround investors have evolved into a focused subset of dedicated resuscitation specialists. Firms like Sun Capital, KPS Capital, Monomoy Capital, Cerberus, MatlinPatterson and the like have carved out a niche for themselves as fixer-uppers. A downturn such as this should be their time to invest, yet the phrase “trying to catch a falling knife” has been tossed around so much it’s almost become a cliché. Lucky for those firms, it appears the knife is now safe to grab.

Read the full article, by Senior Editor Bernard Vaughan, on the Buyouts magazine web site (subscription required).