February 15, 2024

Issue No. 1

WELCOME TO M&A ALERTS!

The M&A Alerts is the official digital email media of THE M&A CONNECTS. THE M&A CONNECTS is growing online business community that act as a vital hub for merger and acquisitions professionals. This dynamic platform is powered by THE M&A Advisor. 

The M&A Alert is a fortnightly digital bulletin that is a valuable resource for mergers and acquisitions professionals. It keeps them abreast with the latest industry updates, trends, and relevant news, and provides them with timely information about upcoming events and happenings related to the M&A Connects online community. If you have any more questions or need further assistance, feel free to ask!

The Fortnightly Alerts

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The Fortnightly News

IN THIS ISSUE

1. Resilience Amid Turmoil: The Distressed Debt Investing Landscape in 2024 

2. From Crisis to Opportunity: Identifying the Challenges of Distressed Investing 

3. Come & join the 2024 Distressed Investing Summit, featuring the 18th Annual Turnaround Awards

 

Registration Is Now Open

1. Resilience Amid Turmoil: The Distressed Debt Investing Landscape in 2024

The outlook for the distressed debt investments in 2024 appears to be cautiously optimistic. According to Senior Financial Writer Madeline Shi of the Pitchbook News, distressed debt investors are preparing for renewed opportunities this year. Despite recent performance slips, there’s a prevailing sense of optimism surrounding distressed assets. Let’s take a closer look at the distressed debt investing landscape in 2024 more closely.

A. Performance Trends

In recent years, the distressed debt funds have experienced a decline in performance with the limited availability of attractive distressed assets. However, fund managers anticipate an increase in capital deployment in 2024 and beyond. Lifting from the Pitchbook News on 2024 Distressed Debt Investing, “the expectation is that more troubled companies and distressed debt opportunities will emerge.”

Source: PitchBook data
Geography: Global
*As of June 30, 2023

 

B. Interest Rates Impact

The challenge is the impact of persistently low- interest rates that prevent companies from servicing their debt and meeting fixed charges. As these interest rates remain low, over- leveraged borrowers with maturing debt may face stressed and distressed situations. Thus, the business environment is anticipated to lead to an increase in distressed deals, which could potentially enhance fund returns and drive capital- raising efforts.

C. Historical Context

In previous years 2020 and early 2021, distressed debt funds had promising moments due to the increased corporate stress brought about by the effects of the initial COVID-19 outbreak. However, such a positive perspective was broken due to the government stimulus measures which brought about healthier levels of distressed asset prices. The fund managers decelerated investment that led to lackluster returns and decreased investor interest.

Source: PitchBook data
Geography: Global
*As of Oct 27, 2023

 

In summary, while there are challenges that persist, managers anticipate a more favorable investing environment for distressed debt investments in 2024 due to interest rate dynamics and potential distressed situations amongst borrowers.

To read the Madeline Shi article, go to: https://pitchbook.com/news/articles/distressed-debt-fund-performance-returns-2024.

We invite you to share your thoughts on this and other stories or suggest topics you believe we should cover. You can email us at editor@maadvisor.com or log on to our website (www.maadvisor.com) to participate in the online discussion. Please register with our M&A Connects to get the most out of the membership TODAY. Click here.

2. From Crisis to Opportunity: Identifying the Challenges of Distressed Investing

To ensure sure-ball success in handling opportunities, one must always be mindful of pitfalls and ready to take on challenges. The arena of Distressed Debt Investing presents a formidable array of challenges. Join me in exploring them.

A. Lack of access to financial information.

Due diligence in distressed debt investing is often limited to a company’s public records. According to Harvard Business School Online news, investors may not have comprehensive insights into the company’s finances, leading to investment decisions based on an incomplete picture.

B. Competition with other investors.

The imminent challenge for Distressed debt investors is the competition with other savvy investors. The slow accumulation of a company’s debt by other investors could result in their gaining majority share or seniority, leaving latecomers with fewer growth opportunities.

C. Illiquidity and large- scale purchases.

Debt is inherently not liquid, such that buying large quantities of distressed debt is very challenging. Investors must be able to successfully manage the complexities of purchasing significant amounts of distressed debts while ensuring efficient capital deployment.

D. Operational inefficiencies and legal challenges.

Distressed companies often face operational inefficiencies, declining revenues, and legal or regulatory hurdles. Investors need to evaluate such risks and the impact on potential profits.

E. Market timing and alpha generation.

Timing entry into distressed debt strategics can be very tricky. While historically low interest rates have contributed to low default rates, external triggers—such as economic slowdowns or global threats—can swiftly lead to distressed situations. The generation of alpha or excess returns requires perfect timing and implementation.

F. Private credit market dynamics.

The substantial growth of the private credit market has led to more middle-market issuers facing stressful situations. Weaker documentation, higher leverage, and new entrants contribute to the growing distressed opportunities, but identifying the right targets remains challenging.

G. Fundraising difficulties.

Distressed debt fund managers have struggled to raise capital in the past years. The cyclical nature of distressed investments results in less consistent fundraising compared to direct lending.

 

Want to know more? Please read the following:

https://online.hbs.edu/blog/post/distressed-debt-investing

https://www.fool.com/investing/general/2015/05/19/how-distressed-debt-investing-works.aspx

https://www.barings.com/globalassets/1-perspectives/viewpoints-article-files/03.2020_distresseddebt.pdf

https://pitchbook.com/news/articles/distressed-debt-fund-performance-returns-2024

 

We invite you to share your thoughts on this and other stories or suggest topics you believe we should cover. You can email us at editor@maadvisor.com or log on to our website (www.maadvisor.com) to participate in the online discussion. Please register with our M&A Connects to get the most out of the membership TODAY. Click here.

3. Upcoming Event:

YOU are cordially invited to the M&A Event of the Quarter:

Event by The M&A Advisor

Mar 18, 2024, 6:00 PM – Mar 19, 2024, 11:00 PM  
The Ben Hotel, 251 N Narcissus Ave, West Palm Beach, FL 33401, United States 

Calling all M&A professionals, dealmakers, and experts! This event will allow the M&A industry to come together to reconnect, meet new connections, listen and join in thought-provoking and interactive discussions, and Q&A with the industry’s distinguished Thought Leaders, exchange insights, and celebrate excellence in M&A, restructuring, and financing. COME and join us in person from March 18 to 19, 2024 at Palm Beach, Florida.

Don’t miss this special opportunity to be a part of the conversation and participate in shaping the future of the M&A business. Call 212-951-1550 or contact us at events@maadvisor.com to register today.

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