Special situation investors market outlook

15 August 2023

Over the last 12 months, we have connected with special situation investors and advised on distressed and accelerated transactions, giving us insight into market trends and what the next few months hold. The pursuit of special situations deals was mostly driven by one of the following three categories: 

  1. non-core strategic disposals;
  2. exits to raise liquid resources/recapitalise the balance sheet to facilitate a turnaround of a wider group corporate rescue; or
  3. disposals as part of an insolvency process (ie pre-pack administration).

Due to prolonged economic headwinds, the consensus among special situations investors is that disposals to inject much-needed liquidity for a corporate rescue, or those forming part of an insolvent sales process, are expected to make up a greater proportion of sell-side deal activity.  

The options that investors will consider prior to an accelerated business sale include cost-rationalisation initiatives, balance sheet restructuring and refinancing debt facilities/reset of debt covenants. However, in some cases these prove ineffective, resulting in the need to pursue a share or asset sale.

How macroeconomic trends impact corporate transactions

In the investor community, the most cited concerns expected to drive distressed transactions in the near future are inflation and, inextricably linked to that, the increased cost of debt.

The inability to refinance existing debt in the first instance might lead borrowers to turn to alternative lenders; these, however, tend to have a higher risk appetite and therefore require substantially higher interest payments. If a company’s financial forecasts cannot justify such heightened cost of debt, it is not unreasonable to expect that more and more companies will need to pursue different options, including an accelerated sale.

Among other macroeconomic factors being quoted as potential drivers of distressed corporate transactions are recent fluctuations in energy prices, staffing shortages and supply chain disruptions.

Industry trends

For differing reasons, all industries have been impacted by the macroeconomic environment. However, the industrial, business services and retail sectors stand out as those where specialist investors appear to have been most active.

It is perhaps unsurprising that the retail and consumer markets sector is expected to be one that will see higher deal activity, since inflation and a cost-of-living crisis have driven discretionary spending down. 

We have spoken to investors who operate across different industries and with varying cheque size. Usually, the cheque size these specialist investors would consider for a distressed opportunity is less than £10m, but there are also some larger funds that are in a position to deploy up to £50m. Overall, the deals presented for consideration are predominantly for UK companies, as opposed to overseas deals.

Deal volume

Considering the above factors and trends, the investors we spoke to expect distressed deal volume to be higher in the second half of 2023. During this period, investors are forecasting to deploy the same level of capital, if not more, with some expecting significantly more compared to H1 2023. This testifies that the private capital sector is sitting on large amounts of dry powder. For the purposes of accelerated disposals, however, the key is being able to deploy such capital within a short time frame. 


The recent economic climate has brought on a wave of uncertainty and concern to mid-market businesses. While working capital and cash flow pressures are commonly among the most immediate concerns, companies also need to think about longer term issues and act proactively if deteriorating trading conditions are forecast.

When responding to crisis situations, businesses must anticipate and address problems hastily. Engaging in early discussions about available options become key. 

At RSM, our special situations M&A team has significant experience of reviewing options, advising on strategic carve outs and accelerated business sales. If you would like to discuss how our special situations team can support you, please contact Jason Stone.

Jason Stone
Jason Stone
Partner, Head of Special Situations
Jason Stone
Jason Stone
Partner, Head of Special Situations