FTI Consulting Survey Predicts 2024 To Be the Year of the “Zombie” Company
London, 5 February 2024 — FTI Consulting Inc. (NYSE: FCN) today released its annual Special Situations Investor Survey, which aggregates the responses of UK-based investors focused primarily on mid-market alternative investments. The survey includes views from investors with a typical equity cheque size ranging from £10 million to £100 million per transaction and target returns of between 15% and 30%.
Mid-market special situations investors began 2023 with expectations of improved deal flow supported by a backdrop of stubborn inflation, rising interest rates, high corporate leverage, low consumer confidence, challenging operating conditions and geopolitical tensions. Whilst 77% of investors did see an increase in the number of special situations M&A processes in 2023, it did not result in significantly more capital being deployed, primarily due to the lack of quality of the vast majority of opportunities being marketed, which was a similar theme in 2022.
Disappointingly for turnaround investors in 2023, a number of potentially more attractive turnaround opportunities ultimately did not make it to market, as lenders decided to take the keys from sponsors rather than seek an exit via M&A.
The most common sectors for turnaround opportunities in 2023 were those tied to discretionary spending, such as retail, leisure and construction. Additionally, lower margin industries, including industrials, automotive and engineering, saw their fair share of special situations M&A activity given the challenges of ongoing supply chain and inflationary pressures.
More than 70% of investors are pessimistic about the outlook for the UK economy, partly reflecting an expectation that situations involving so-called “zombie” companies are likely to continue to rise due to more testing financing and trading conditions in 2024. As a result, four out of five investors surveyed are expecting to deploy more or significantly more capital on special situations opportunities this year.
“A number of businesses that have been hanging on, cushioned by cheaper debt, will face an inflexion point this year,” said Ben Hughes, a Senior Managing Director in the Special Situations M&A practice at FTI Consulting. “We expect to see an increase in distressed deal activity in the year ahead as a growing number of sponsors and lenders conclude that seeking an exit is likely to be the optimal solution for the more stressed assets in their portfolios.”
London, EC1A 4HD
+44 20 7632 5071
Source: FTI Consulting, Inc.