NEW YORK, NY--(Marketwire - Dec 4, 2012) - Schulte Roth & Zabel LLP, a leading law firm serving the financial services sector, today announced the findings of the firm's newly released Distressed Investing M&A report, produced in association with mergermarket and Debtwire. Based on a series of interviews with investment bankers, private equity practitioners and hedge fund investors, the report provides insight into pricing, litigation, club deals and various other issues concerning the distressed M&A community.
According to the report, economic uncertainty brought on by the looming U.S. "fiscal cliff" has placed companies in difficult situations. Availability of financing and the political climate will have the greatest influence on the valuations distressed companies receive, according to 40% of respondents. The report also found that distressed companies in the healthcare sector have seen stable valuations in 2012 as the markets prepare for the enactment of the future stages of healthcare reform.
Overall pricing of distressed companies and assets are narrowly expected to decline through 2013, according to 42% of those surveyed. Commenting on this, Adam Harris, partner and co-chair of the business reorganization practice at Schulte Roth & Zabel, said, "The expectation on pricing of distressed assets outside of the United States is consistent with the continued belief that European banks and other financial institutions will ultimately have to shed their balance sheets of non-performing or underperforming assets, thus creating opportunities for alternative investment funds. The question remains when, and whether, those banks and institutions will become more realistic on pricing."
The U.S. economic recovery stands out as the current economic issue that could have the greatest impact on distressed M&A decision-making over the next 12 months, according to 39% of respondents. Following closely behind, 34% of those surveyed predict the eurozone crisis will have the most significant impact. While the slowdown of China's rapid growth and hyperinflation in emerging markets of Latin American countries like Brazil and Argentina have hurt companies, the market for distressed companies in such countries does not match the volume of the U.S. and Europe.
"The concerns shown by the respondents are consistent with the drivers of the overall sluggishness of the M&A market in the 2nd half of 2012 -- confidence and stability are drivers of M&A activity generally, and may be of particular concern with respect to distressed M&A because such companies have less room for error in their financial condition and results of operations," said David Rosewater, partner in the M&A practice at Schulte Roth & Zabel.
Chapter 11 reorganizations are expected to be the top distressed M&A transaction type with 58% of the response supporting this, followed by Section 363 asset sales. Stuart Freedman, partner in the M&A practice at Schulte Roth & Zabel, commented, "363 sales are also an extremely useful tool for acquirors. In a 363 sale, intercreditor fights to divide up the spoils are generally left to another day, and transactions can get consummated quickly. Plans of reorganization are more suited to larger companies with more complex capital structures, particularly where it is going to be difficult or unattractive to replace existing financing."
- The political climate is expected to have the greatest impact on the pricing of distressed assets and companies outside the U.S., according to 56% of respondents.
- Balance sheet restructurings are the top targets for acquirers of distressed companies, according to the 65% majority of respondents.
- Energy and industrials and chemicals are the top two sectors in which respondents expect to see the best opportunities for future distressed acquisitions both in and out of the U.S.
- The operational risks of a company in distress will have the biggest impact in deciding whether or not to acquire, according to 63% of respondents.
About Schulte Roth & Zabel LLP
Schulte Roth & Zabel (www.srz.com) is a full-service law firm with offices in New York, London and Washington, D.C. As one of the leading law firms serving the financial services industry, the firm regularly advises clients on corporate and transactional matters, as well as providing counsel on securities regulatory compliance, enforcement and investigative issues. The firm's practices include business reorganization; mergers and acquisitions; distressed investing; bank regulatory; employment & employee benefits; environmental; finance; individual client services; intellectual property, sourcing & technology; investment management; litigation; real estate; regulatory & compliance; securities & capital markets; structured products & derivatives; and tax.
mergermarket is an independent Mergers and Acquisitions (M&A) intelligence service, with the largest network of dedicated M&A journalists on the ground in 65 locations across the Americas, Asia-Pacific, Europe, the Middle East and Africa. This team focuses on gathering actionable proprietary intelligence, creating the only origination database of live targets and bidders. mergermarket is also an unrivalled source of deal history. Public and private deals across a range of sectors can be searched using an exhaustive database. This proprietary intelligence and historical deals database is available to over 145,000 individual subscribers from more than 1,600 of the world's principal advisory firms, investment banks, law firms, private equity firms and corporates. mergermarket is part of The Mergermarket Group, which has over 600 employees worldwide and regional head offices in London, New York and Hong Kong.
Debtwire is the most comprehensive provider of actionable intelligence and research on fixed income markets across the globe. With a team of expert fixed income journalists and analysts stationed worldwide, Debtwire offers unparalleled coverage of companies in the high-yield, distressed debt and leveraged loan arenas, leading the market and mainstream media with its real-time updates on capital raises, ongoing restructurings and post-restructuring situations. This actionable intelligence enables professionals in the investment, trading and advisory communities to stay ahead of competitors and uncover new business opportunities. Debtwire is part of The Mergermarket Group, a Financial Times Group company. Visit: www.debtwire.com