TMA Poll: Credit Issues Crimp Turnarounds

Oct 14, 2010, 15:08 ET from Turnaround Management Association

CHICAGO, Oct. 14 /PRNewswire-USNewswire/ -- In the wake of a tentative economic recovery, the turnaround industry is "in transition" as credit remains off-limits for some distressed companies and allows others to push their day of reckoning down the road, according to Turnaround Management Association Trend Watch survey results.

About 70 percent of respondents expected the number of engagements and estimated revenues this year, as compared to 2009, to remain flat or decrease. That's up from about 40 percent last year. Of those polled last month, 41 percent -- versus 17 percent in 2009 -- expect to see revenues decrease by as much as 50 percent.

Most respondents expressed optimism about revenues for the upcoming year, but a wobbly economy even has dimmed those expectations from a year ago. Then, 64 percent expected revenues to increase by 10 percent or more, but only 53 percent thought so this year.  

Still, nearly 40 percent of respondents said firms spent at least half their time this year reorganizing companies that remain under the same owners, and seven out of 10 said most work has occurred outside of bankruptcy court, up from 42 percent. Those out-of-court services include prepackaged bankruptcies in which creditor approvals needed to restructure a company are obtained before a relatively abbreviated court process.

Nearly 70 percent said banks and asset-based lenders refer most engagements, while half said attorneys are the main source for leads. The fraction of respondents getting leads from private-equity firms dropped from about a third in 2007 and 2008 to under 20 percent in 2010.

About 60 percent said they are working mostly with manufacturing businesses and most were in late decline at the time of the referral. Another 42 percent said real estate businesses accounted for most current engagements. That figure has risen steadily from 20 percent in 2006, but the sluggish economy appears to have a tempering effect.

Eight out of 10 respondents said firms plan to maintain or reduce staffing levels, up from 55 percent. Of the 19 percent indicating that firms plan to hire, most said firms are relying on recommendations from business contacts and networking events. About 60 percent of respondents said firms are putting a premium on hires with prior turnaround experience.

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SOURCE Turnaround Management Association