MA Financial CEO Chris Wyke eyes restructuring opportunities in ‘calm before storm’
“You’ve got super funds going direct and having their own credit teams. I also like structured finance because it is precise and clear as to what happens if the performance at the asset level is not there,” Wyke said.
Opportunistic M&A advisory work should also spike for restructuring bankers as private equity firms look to flip assets and companies eye strategic acquisitions in a bid to gain market share.
KKR-backed GenesisCare, for example, mandated Lazard in October to discuss restructuring options. The oncology company is facing pressure from lenders worried about its debt pile, which has swelled above $2 billion.
Shoe company Aquila – backed by Fortitude Investment Partners – has called in Edison Partners to handle inbound inquiries about the retailer’s openness to an offer, Street Talk reported earlier this month.
While conditions have clearly soured for dealmaking, Wyke insisted that companies get on the front foot and start exploring their options now to avoid the pain of heavier restructuring efforts in the future.
Businesses hamstrung by debt, or those in industries exposed to an economic downturn, should be thinking about their capital structures, he said.
“You don’t want to be too late such that it becomes challenging to heal your business. You’re better off going into this [downturn] lean and less levered,” Wyke said. “Those businesses that are carrying excess leverage or hit hard operationally, should be thinking about their capital structure in as flexible terms as possible.”
Turnaround experts come to the table
It’s been a long time coming for restructuring experts. Companies feasted on low-cost debt and soaring stock prices to raise capital and prop up their balance sheets, and left little work for restructuring bankers.
But as the economy turns and companies stare at debt defaults and lower valuations, it’s restructurings’ moment to shine.
Wyke reckons it will still take some time for a pipeline of work to really present itself. But he is advising clients to get ahead of any potential duress by shoring up their balance sheets and being prudent with operational matters like cost cuts.
“You’ve got to give companies a clear line of sight as to what makes the most strategic sense as opposed to being too reactive,” he said. “Because the moment the market gets a sniff of weakness and thinks you’ve got to raise money, that puts downward pressure on your price.”