distressed private equity and m&a

It's extremely situational. Deals are typically driven by large market forces that remove liquidity and/or credit from the affected industry or business. You can make a ton of money if that window's open, if you have the capital, and if you have the expertise in that field to execute. But that window is not typically open long enough to build a full business around those investments.

I'd argue it's very common, just not as "mainstream" because big banks, funds and institutions can't "be seen" to hold distressed assets or securities. There are plenty of funds and firms that target the insolvent. Look at the o&g industry the last 2 years. Private equity money has and will continue to shuffle the deck.

quote:

---

Curious why distressed m&a and pe isn't very common/mainstream?

---

I'd say because it's usually talked about more in the realm of distressed debt and junk bonds, rather than it terms of equity. Think about it--if a firm is distressed, then almost by definition its equity will be worth very little.

So in the world of "vulture investing" (or more positively, "turnaround management"), investors usually focus on buying the distressed debt, and then work out a deal (for example, a prepackaged bankruptcy) with the remaining equity holders to restructure the company and wipe out the old equity. (It's no coincidence that hedge funds and other firms that invest in distressed companies often have a lot of associates who are bankruptcy lawyers... one of the best fields in finance for lawyers.) A distressed deal doesn't have to involve a declared insolvency of course. Like you indicated, there could be a tender offer for the remaining shares. However, even in those cases, the acquirers had better put most of their attention on controlling the distressed debt situation.

In terms of the market cycle for more passive investors, I find the junk bond market cycle fascinating, and I studied it a good bit some years back. The key take-away I think, is that junk bonds tend to get killed going into recessions, but that coming out of recessions, junk bonds are generally the first place where "green shoots" investors can put their money and make a killing on the benefits of economic recovery.

As for where we are right now, check out this Seeking Alpha snippet from June 18: " Bad Time To Invest In Junk Bonds."



That little snipper doesn't even mention a trend that I've been reading elsewhere recently, which is that corporate bonds (including junk bonds) are setting near-term records for issuing higher and higher percentages of covenant-light bonds. This shows that it's a seller's market, and that bond investors have little power to force companies to put more restrictions into their bond offerings.

In any case, if you are interested in becoming a "vulture investor" one day, I would suggest the following as the best place to start: Turnaround Management Association.

Do you read Gadfly? They had a good article and analysis on junk spreads and quality.

LINK