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The Increasing Prevalence of Turnaround Among Private Equity Fund Managers – June 2015

by Allison Polchinski

  • 01 Jun 2015
  • PE

Private equity firms investing in turnaround situations seek to provide capital to underperforming companies in order to revitalize their fortunes. Despite some recent negative news coverage surrounding turnaround investments, notably with Better Capital and CityLink at the end of last year, Preqin’s private equity data points to an increase in both the number of firms employing the strategy and the number of funds raised. According to Preqin’s Fund Manager Profiles data, there has been an increase in the number of private equity managers that include turnaround investments as part of a wider investment strategy in recent years. As of today, there are 543 active firms currently looking to employ this strategy as part of a wider investment focus, up from 280 in May 2012.

Firms investing in turnaround opportunities are largely concentrated in North America, as the chart below illustrates, with 285 of the 543 private equity managers seeking to invest in turnaround investments located in the region. Additionally, six of the 10 largest firms in terms of turnaround funds raised over the past decade are headquartered in this region, having collected almost $16bn. Europe has the second largest number of managers interested in turnarounds, however these firms account for significantly less capital. Japan is the stand-out Asia-based contributor, with Japan Industrial Solutions the only Asia-based firm to have raised over $1bn for turnaround investing in the past 10 years.

Most managers looking for opportunities in turnaround situations seek this investment type as part of a wider strategy. Generally, these managers focus on distressed private equity or buyout investments and will also provide capital to underperforming companies. Carlyle Group is the largest private equity manager by funds raised in the last 10 years to include turnaround investments as part of a larger scope. However, over the past decade, Sun Capital Partners has raised the most  turnaround-specific funds, having collected almost $9bn from three vehicles, the latest being the 2013 vintage $2.1bn fund, Sun Capital Partners VI, which focuses on a range of industries across North America and Western Europe.

The number of firms seeking turnaround opportunities has nearly doubled since 2012, and turnaround-specific funds have also increased both in number of vehicles closed and capital raised. Funds exclusively focused on turnaround investments that closed in 2014 raised $5.2bn, collecting more capital than was raised by all funds closed in both 2012 and 2013 combined. This has left the strategy with dry powder at the end of 2014 standing at $8.6bn, the highest level in the period 2003 to present. Furthermore, with 12 funds currently in market focused on turnaround investments seeking an aggregate $7.1bn, the recent fundraising trend for the strategy looks set to continue. 

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