WITH recession expected in many economies, distressed situations will be an important source of deals for prospective investors. What will matter is whether the targets are permanently impaired or can be turned around.
Two real-life scenarios from the debt bubble of the early aughts and the ensuing credit crunch provide helpful guidance.
UK investment firm Candover bought hygienic products producer Ontex for one billion euros (S$1.4 billion), or 8.1 times earnings before interest, taxes, depreciation and amortisation (Ebitda), in 2002. The debt package, comprising senior and mezzanine loans, totalled six times earnings.
Despite strong economic growth, Ontex’s Ebitda margin dropped from 17 per...
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