Neuberger Berman global head of alternatives Anthony D.Tutrone said financing for new transactions and dividend payments is readily available and that public markets are receptive to companies backed by both buyout firms and venture capital investments.
“Currently, we believe there is a large global supply of orphaned business units within public and private companies that suffer from suboptimal resources and a lack of capital and attention,” said Mr Tutrone.
He said when companies focus on core assets, they are often eager to sell off non-core businesses at attractive prices.
As a result Mr Tutrone believes these “orphaned divisions” can offer a valuable opportunity for investors who are skilled in acquiring, restructuring and rehabilitating struggling companies, particularly in the current low-growth and highly competitive marketplace.
He expects private equity firms specialising in distressed financial assets, particularly institutions, to benefit from the drive in supply of non-core assets by an increasing willingness by banks to sell assets at market clearing prices.
“Although heightened competition for these assets has increased pricing, we believe the opportunity will continue for many years, given the bank provisioning levels,” he said.
He also believes hard asset strategies within the aircraft, shipping and energy sectors offer the opportunity for outsized returns as they are generally “niche orientated and have considerable barriers to entry”.
He said he was cautious towards distressed debt strategies as there were few opportunities in the marketplace as a result of the rally in credit markets, consistently low interest rates and an improving economy with lowered default rates.
“Still, we believe there is significant potential on a case-by-case basis in various geographies and sectors around the world,” he said.
According to Mr Tutrone, Europe has a larger supply of distressed corporate debt opportunities than the United States.
Record low interest rates have, however, encouraged the growth of the venture-backed IPO market.
Mr Tutrone also believes secondary market sales transactions will improve in 2014.
“The secondary market growth drivers of recent years, namely the expansion of the universe of sellers, changing regulation of financial institutions, more active portfolio management and the growth in private equity are, in our opinion, sustainable, long-term trends that we believe will continue to drive supply in 2014 and beyond,” he said.
