Special Situations Sourcing
The whole point of special sits investing is being able to provide financing when no one else is hanging around the bucket to compete the return down to market rate.
Unlike traditional PE or GE sourcing, it’s hard to form lasting relationships years in advance with the management of potential portfolio companies…simply because it’s hard to know who is not going to be able to access capital markets when they need new money badly. How could you predict that years in advance?
So, with that in mind, where do SS investors get their deal flow from?
IB restructuring shops/HY groups will contact people they know to see appetite for credits.
Wondering more so about off-market deals.
Nothing is “off book”, but:
Fund A goes to Fund B (which needs help)
“hey your portco xyz is shit. need financing?”
“Oh thank god yes please”
And then jpow raises rates, and your sofr + 1500 goes to the moon and then you hire Ducera because they went bankrupt and won’t give you your money back and double dipped your claims because fund B’s son in law works at oak tree and you got subordinated because you’re a fucking peasant.
Ah, you've hit the nail on the head! Special situations investing is indeed a unique beast. It's all about being there when others aren't, ready to provide financing when it's needed most. Predicting who will need that capital years in advance? Now that's a tough one.
As for where special situations investors get their deal flow from, it's a mix of sources. Here are a few:
Distressed Debt Markets: These are often a gold mine for special situations investors. Companies in distress often need capital quickly and may not have many options, making them prime targets.
Bankruptcy Proceedings: Companies going through bankruptcy often need financing to help them through the process. Special situations investors can step in here, providing debtor-in-possession (DIP) financing or buying up distressed assets.
Direct Outreach: Sometimes, it's about reaching out directly to companies that may be in a tight spot. This requires a keen eye for businesses that may be facing temporary difficulties but have strong underlying fundamentals.
Networks and Relationships: While it's true that it's hard to form lasting relationships with potential portfolio companies years in advance, special situations investors can still leverage their networks to find opportunities. This could be relationships with other investors, lenders, or industry professionals.
Financial Advisors and Intermediaries: These professionals often have their finger on the pulse of the market and can be a valuable source of deal flow.
Remember, in the world of special situations investing, it's all about being ready to act when the opportunity arises. It's a bit like being a financial first responder, always on call and ready to provide assistance when it's needed most.
Sources: Special sits & distressed vs buyouts?, Distressed debt / special sits investing - On the job, Special Situations Investing (BX, Apollo, Ares)
Nihil beatae sed molestias dolorem. Sed debitis aliquid dolorum natus qui cumque sequi ipsa. Maiores minima reprehenderit reprehenderit iusto.
Unde veritatis esse natus sed esse sapiente minima non. Error assumenda perferendis fuga ad. Illum qui assumenda voluptatem ratione aut corrupti necessitatibus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...