Anna Blackaby meets four turnaround investors who shed light on what happens when they step in to fund a crisis-hit business.

Turnaround investors get a bit tetchy when the word “vulture” comes up in conversation.

Far from being predators circling around a struggling business, they prefer to see themselves as the A&E consultants of the investment world.

Just as in any emergency situation, they usually have to make difficult decisions and carry out major surgery by cutting staff or selling off parts of the business.

But the ultimate goal is to ensure the “patient” survives and thrives so the investors can sell it on in a better state in which they found it.

In fact some even get a bit misty-eyed about the job they do.

Jamie Constable of RCapital Partners, a mid-market firm whose recent investments include Derby-based steel firm Robinsons, said: “You take a company that is on the floor and then two or three years later you are in another meeting where you are selling the business for a lot of money,” he said.

“It’s lovely to take someone from such a low point in their life back to where they thought they were going to be in the first place.”

Chris Althorp-Gormlay of SKG Capital, who specialises in the retail sector, agreed.

“It’s not about us coming in and asset stripping,” he said. “When you go in and meet these people they are often battle-fatigued from dealing with non-stop financial crisis after crisis.

“You walk in – this is the fluffy bit – and you can see their shoulders lift as they say, ‘let me get this right, you’re going to put some money in and get us out of this problem?’

“We tell them there’s a cost to do that and a risk – you have to be over 21 and we have to have a conversation about how it works – but then they stop having to take those phone calls.”

The UK’s turnaround investors have been getting busier since the recession hit and the subsequent faltering recovery came along.

According to KPMG, nearly £1 billion has been invested in distressed companies in the UK over the last 12 months alone.

The firm has identified around 60 specialist turnaround investors working in the UK and the vast majority – 80 per cent – are seeing more opportunities than a year ago.

KPMG points to a new kind of approach where backers no longer wait for a company to fall into administration before moving in.

Will Wright, Birmingham-based restructuring director at KPMG, said the problem with the traditional approach was that the insolvency process destroys the value of a company.

“We think the market will ultimately move to a situation where businesses are restructured before the firm goes into insolvency.

“The benefit of that is you preserve value,” he said.

KPMG has identified these kinds of moneymen as a “new breed” of turnaround investors. It definitely takes a certain type of constitution to thrust yourself into a crisis scenario and put your money on the line to save a business on the brink of collapse.

The sector has something of a frontier mentality – a fast-moving world a million miles away from the spreadsheets and lengthy negotiations of traditional private equity, where deals can be struck within weeks or even hours as opposed to months.

Typically turnaround investors are introduced to struggling firms by the advisory community – but sometimes they are approached directly by the companies themselves, something they are keen to encourage.

The one key message is don’t leave it too late – once a business has got too deep into the mire, there’s not much a new investor can do to help when landlords and pension trustees are banging down the door.

But when a business is in a crisis situation and the owner is dodging angry phone calls and threatening letters, it can be a big step to admit that help is needed.

Mark Aldridge, chief executive of Jon Moulton’s turnaround fund Better Capital, said: “The most important thing is to recognise you have a problem.

“If you leave it too late, your room for manoeuvre is limited,” he said.

Nick Leitch, investment director of the Birmingham office of Endless, cast light on the process that goes into deciding whether to invest or not.

“The first thing you do is make a judgement on whether you think there is a reason for the business to exist – why it’s here, what it does and to what extent that is valid today, tomorrow, or in six months or two or three years time.”

There are three common themes in a turnaround situation, he said.