Turnaround private equity investment criteria
Investment stage
Investment is limited to underperforming and distressed companies.
Venture, expansion and buy-out situations are excluded.
Industry focus
Given the target market, investments are value-focused as opposed to industry-focused.
Nevertheless, turnaround managers and consultants with specific relevant industry expertise will as far as possible be employed in turnaround management.
Investment selection criteria
Business criteria |
|
Financial performance |
At or near cash flow breakeven within a one to three month period. |
Size of client |
Annual turnover in excess of R100m. |
Ownership |
Investor to have board control. |
Management |
CRS Turnaround or its agents to have management control. |
Investment size |
R5m upwards. |
Investment horizon |
Two to four years. |
Required rate of return |
We seek above average returns commensurate with the risk profile of each investment. By their very nature, turnaround private equity investments are high risk, with a required rate of return normally inbetween those of expansion & buyout capital, and venture capital. The net return to the investor will be the gross required rate of return, less management fees, expenses and carried interest. |
Conformance to turnaround viability criteria |
See below |
Viability criteria
- Causes of distress are identifiable and reversible.
- The financial crisis can be eliminated.
- The cost/price structure is such that margins can be rapidly improved.
- Favourable stakeholder attitudes exist or can be developed.
- Internal constraints (legacy issues, existing infrastructure, etc.) on turnaround potential can be overcome.
- A market exists and a sustainable competitive advantage can be developed.
- The turnaround strategy should move the Z-Score from the Failing Zone or Danger Zone to the Healthy Zone within an acceptable time period.
As a pre-condition to investment, CRS Turnaround has to conduct a turnaround situation assessment to confirm that investment selection criteria have been met.