The more insolvencies the better

A busy year ahead for special situations

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For most people, the next twelve months are packed with economic uncertainty. For special situations funds, it could be the best year yet.

Get Up to Speed on Special Situations

Special situations investors specialize in flexible capital solutions, handing businesses a third option when traditional debt financing is too costly (or impossible to obtain) and equity isn’t readily available. Without the restrictions of a typical private equity mandate, the strategy is free to operate across asset classes, markets, industries, and geographies.

The approach is relatively new, pioneered by Blackstone’s Tactical Opportunities fund (often known as TacOpps) shortly after the financial crisis. It thrives in periods of market turmoil and dislocation, or whenever normal sources of capital dry up.

Can’t Ask for a Better Set-up

While the pandemic kicked off a flurry of special situations activity, subsequent rock bottom rates and cheap money meant the party didn’t last long.

Now, after sitting on their hands for the last two years, special situations groups are gearing up for what could be the busiest period they’ve ever seen.

For many businesses, rate hikes have doubled or tripled their debt service costs. Inflation hasn’t helped, particularly for companies that have had a difficult time passing on price increases to customers. The upshot is that debt burdens which may once have looked relatively conservative are now pushing companies over the edge.

Even without performance or operational issues, businesses that last raised debt financing in a low-rate environment could be in trouble when that capital comes due. With over $100 billion of leveraged loan maturity over the next two years, anyone unable to refinance on the same terms could be forced to raise equity.

Chris James, COO of the TacOpps group, puts it bluntly: “I think this is a crisis.” Whatever happens, special situations investors are standing by to help (in exchange for hefty returns).

Target Deals

Special situations groups are heading into 2024 with a few key focus areas: corporate carve-outs, operational turnarounds, and balance sheet restructurings.

There’s also an opportunity for opportunistic credit investments — investors point to growing demand from sponsors trying to get deals done in a more challenging credit environment, building out complex capital structures in the absence of sufficient senior debt.

One thing that’s not necessarily a target is bankruptcy:

“I think when people think of this space they think bankruptcies, but that can destroy value and the costs can get out of control really quickly.” It’s always an option, but we really try to avoid going there if we can identify other value-maximizing solutions. Distressed investing encompasses much more than just bankruptcies.”

Ann Miller, Co-Head of Special Situations Advisory at Stout

FTI’s Bob Del Genio provides more color, telling Middle Market Growth “there are a lot more financing options, whether those are bridge arrangements, rescue financing, or other workouts that are happening outside of court. Parties generally want to try to do that because then you can move into and out of a process faster and you have a concrete plan that you can tell to the market, to customers, to vendors, versus just going to court and trying to figure it out.”

It’s Getting Crowded

Blackstone’s TacOpps success meant it wasn’t alone for long — there are now more than a dozen managers offering special situations strategies, including Oaktree, Apollo, Ares, MidOcean, Towerbrook, Brookfield, Sixth Street, and KKR.

More firms and more capital chasing the same set of deals could just compete away any chance for solid returns. But TacOpps Co-Head David Blitzer says that’s the wrong take: “On all sides of the equation, this area is growing much faster than the capital set is growing.”

He’s not alone. Stout’s Miller thinks “there are more opportunities now for everyone,” and that “veteran teams are always going to find ways to invest and make a return.” The market is also recognizing the importance of investors that can play across the capital stack and there’s a preference for working with teams that have been there before, know the options, and can get a deal done. Providing certainty in an uncertain market is a great way to get an edge.

What’s Next?

No one wants to look like they’re profiting from the misfortune of others, but, for special situations investors, it’s getting hard to hide the excitement. Blitzer says “the market is just starting to get more interesting — when I look out three to twelve months, it’s going to be even more interesting than it is today.”


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1. The latest Cerberus bankruptcy.

Off Lease Only, a Cerberus-owned used car dealer, filed for bankruptcy last week and laid off nearly 500 employees.

• Cerberus bought an 80% stake in the founder-owned business in 2019. Shortly after the purchase, Off Lease changed its pricing structure and rolled out a series of “dealer fees” that baked in thousands of dollars in added expense for each purchase. Long-time customers complained and Off Lease Only managed to develop a reputation for notoriously poor service (even compared to other used car vendors).

• The business blamed the bankruptcy on rate hikes and a tumultuous used car market, but that may not be the whole story — Cerberus also executed a series of sale-leasebacks for the company’s real estate holdings in 2020, presumably taking an early dividend while burdening the business with added expense.

• By the end, the company was apparently as much of a junker as the cars it sold — back in June, Cerberus hired Bank of America to lead a sale process that went flat nearly immediately. Materials went out to 79 parties, but only two opted to submit initial bids. Neither was deemed actionable.

• Cerberus isn’t done yet. Filings list the sponsor as creditor on a $52 million PIK note. For good measure, Cerberus also submitted a $4 million unsecured claim for technology consulting services provided to Off Lease.

2. Instacart is prepping for a ‘down round IPO.’

• Grocery delivery startup Instacart is closing in on its long-awaited IPO, pricing Monday night ahead of a Tuesday offering.

• Following positive market reception of chipmaker Arm’s float, Instacart announced it had moved its expected range from $26 - $28 per share to $28 - $30.

• The upward revision nears a $10 billion valuation but doesn’t do much for venture backers, including Sequoia, D1, and Andreesen Horowitz, who most recently valued Instacart at $39 billion in a 2021 raise.

• It’s probably not a reality they would’ve chosen to face if they didn’t have to. The IPO is in part forced by a need for cash to cover a $500 million employee stock comp tax bill that’s coming due. However, some investors think it’s a deeper discount than warranted — Sequoia and D1 have said they plan to increase their stake, rather than sell down the position.

• The other surprise from Instacart’s S-1: it’s just another tech advertising business. The company booked $740 million of ad sales in 2022, nearly 30% of total revenue. That mirrors the trend at places like Amazon and Uber, which have seen their advertising revenue grow in importance relative to their core businesses.

3. A CrownRock exit.

• Oil and gas producer CrownRock, backed by private equity firm Lime Rock Partners, is prepping for a sale that could fetch more than $10 billion. That would be the largest O&G transaction since ConocoPhilip’s $13 billion purchase of Concho in 2020.

• CrownRock has invited bankers to pitch for the mandate, with plans to launch a sale process in early 2024. Expectation is heavy interest Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), among the handful of producers with the capacity to take down a purchase of this scale.

• The potential sale follows this year’s rally in oil prices and reflects demand for coveted Permian basin operations, particularly with a tightening supply outlook.

The rest of the deal sheet…

Walt Disney Co. (NYSE: DIS) is considering a sale of ABC to local broadcast business Nexstar (Nasdaq: NXST); it’s also reportedly received a $10 billion offer from media exec Byron Allen for ABC and a basket of other, smaller assets.

Novartis (NYSE: NVS) shareholders approved a plan to spin off generics business Sandoz into a standalone entity.

Estes Express offered $1.53 billion for the terminals portfolio of bankrupt trucking company Yellow, topping a $1.5 billion offer from Old Dominion Freight Lines.

Apollo Global Management is among those considering a bid for the global gaming unit of International Game Technology (NYSE: IGT), which could be worth between $4 billion and $5 billion.

Aspirion, backed by Linden Capital Partners and Varsity Healthcare Partners, acquired Infinia ML, a provider of clinical document processing solutions.

Blackstone is considering a potential $1 billion takeover offer for Growatt Technology, a Chinese solar equipment manufacturer that had been closing in on a Hong Kong IPO.

Chevron (NYSE: CVX) acquired a 78% stake in the world’s largest hydrogen production and storage development from Haddington Ventures.

L Catterton is in talks to buy a majority stake in Japanese veterinary services firm Withmal.

777 Partners agreed to buy Everton FC, a Premier League club that’s been the subject of takeover rumors for much of 2023.

Clearlake, Charlesbank, and Fortress agreed to acquire Learfield, a college sports marketing and content firm, as part of a debt restructuring.

Markerstudy, a British insurer backed by Pollen Street Capital, is acquiring rival Atlanta Group for £1.2 billion, whose backers include Madison Dearborn Partners, HPS Investment Partners, and ADIA.

Vista Equity Partners is prepping a sale process for Stats Perform, a sports intelligence and data firm.

Co-operative Bank, a UK-based middle market lender, has kicked off a sale process and asked for initial bids by early October.

WT Microelectronics agreed to acquire Future Electronics, a Canadian manufacturer, for $3.8 billion.


Birkenstock, the German sandal maker backed by L Catterton, filed for a U.S. IPO that could raise around $750 million.

Lineage Logistics, a cold storage REIT, hired Morgan Stanley to prepare for a possible IPO, per Bloomberg. Backers include Bay Grove Capital, Stonepeak, D1 Capital Partners and Oxford Properties Group.


Verkor, an EV battery manufacturer, raised €850 million in Series C funding from backers including Macquarie, Meridiam, and Renault. The company also secured €600 million in loans from the European Investment Bank.

Getir, a Turkish grocery delivery startup, is raising $500 million in new funding at a $2.5 billion valuation — a steep decline from its $11.8 billion valuation in early 2022.

Denodo, a provider of data analytics solutions, raised $336 million from TPG Growth, with participation from HGGC.

Generate Biomedicines, a developer of protein-based therapeutics, raised $273 million in Series C funding from Amgen, Nvidia, and insiders Flagship Pioneering, ADIA, Fidelity, Alaska Permanent Fund, Arch Venture Partners, Altitude Life Science Ventures, Morningside Ventures, and T. Rowe Price.

GoodVets, a veterinary care platform, raised an undisclosed amount from General Atlantic.

Perfios, a B2B credit underwriting platform, raised $229 million in Series D funding led by Kedaara Capital.

Helsing, an AI defense technology start-up, raised €209 million in Series B funding at a €1.5 billion valuation from investors including Saab and General Catalyst.

VideoAmp, a media analytics firm, raised $150 million in Series G funding from Vista Credit Partners.

Pixis, a marketing platform, raised $85 million in Series C1 funding. Touring Capital led, with participation from Grupo Carso, General Atlantic, Celesta Capital, and Chiratae Ventures.

UBQ Materials, a developer of advanced materials made from waste, raised $70 million. Eden Global Partners led, with participation from insiders TPG Rise Climate, TPG Rise Fund, Battery Ventures, and M&G.

Tarana Wireless, a fixed wireless access company, raised $50 million from Digital Alpha Advisors.

Open Cosmos, a developer of sustainable satellites, raised $50 million. ETF Partners, Trill Impact, and A&G co-led the round, with participation from Accenture Ventures, Banco Santander/InnoEnergy Climate Tech Fund, In-Q-Tel, Ireon, Wille Finance, and Claret Capital Partners.

SQream, a data analytics startup, raised $45 million in Series C funding. World Trade Ventures led, with participation from Schusterman Investments, George Kaiser Foundation, Icon Continuity Fund, Blumberg Capital, and Freddy & Helen Holdings.

Beam Benefits, a medical benefits provider, raised $40 million at a $200 million valuation led by insider Georgian.

Sonex Health, a maker of ultrasound-guided orthopedic therapies, raised $40 million in Series B funding led by insider KCK MedTech.

Swan, an embedded payments startup, raised $40 million in Series B funding led by Lakestar.

Kin Insurance, a homeowner’s insurance startup, raised $33 million in Series D extension funding at a valuation north of $1 billion. QED led, with participation from Allegis Capital, Alpha Edison, Geodesic Capital, and Hudson Structured Capital Management.

Druid, a developer of business chatbots, raised $30 million in Series B funding. TQ Ventures led, with participation from Smedvig Capital, GapMinder, Hoxton Ventures, and Karma Ventures.

Linear, a maker of software development tools, raised $35 million in Series B funding. Accel led, with participation from Sequoia Capital and 01 Advisors.


Qatar announced plans to invest £4 billion in UK-based climate tech startups.

Centerbridge is targeting $3.5 billion for its fifth flagship fund.

Leeds Equity Partners is targeting $1.8 billion for an education-focused fund.

Verdane raised €1.1 billion for its 11th growth fund.

Galvanize Climate Solutions raised more than $1 billion for a debut VC and growth fund.

New Mountain is seeking $1 billion for a second non-control fund.

Mubadala Investment Co. has formed a strategic partnership with Blue Owl Capital, committing $1 billion to the firm’s credit platform.

AP Ventures is raising up to $500 million for its third climate tech venture fund.

Electric Capital is raising up to $300 million for its third crypto-focused venture fund.

Upfront Ventures is raising $280 million for its 8th flagship fund and $200 million for its fourth growth fund.

NordicNinja closed on €200 million second fund focused on Series A investments.


1. You might be rooting for private equity without even knowing it.

• Nearly a third of the U.S.’ 153 major professional sports teams have private equity ownership. That figure is even higher if you exclude the NFL, which currently prohibits private equity stakes. Check it out: Quartz.

2. Deals done and funds raised, but no exits.

Pitchbook released its Q2’23 Middle Market Private Equity report, taking a look at this year’s key trends. Check it out: Pitchbook.

3. Bill Gross didn’t hold back on Bloomberg’s Odd Lots.

“Anyway, so if Jeff Gundlach is a bond king, first of all, to be a bond king or a queen, you need a kingdom. You need a kingdom, okay? Pimco had $2 trillion, okay? DoubleLine’s got like $55 billion. Come on, come on. That's no kingdom. That's like Latvia or Estonia.” Check it out: Bloomberg.


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