Special situations

Quick facts

‘Special situations’ are unusual or one-off events (including rumours and news stories) that mean the market is less able to value a business properly. These events include spin-offs, mergers, bankruptcy, litigation, succession or shareholder action. Special situations funds are equity funds that look to exploit these events by buying equity in these businesses. These funds fall under the banner of private debt.

Special situations funds are considered by some to be the ultimate in ‘active’ investment and have come to be associated with a handful of star stock pickers – as a result they can be more marketing badge than a meaningful descriptor.

Special situations funds come under the banner of private debt funds – your investors (e.g. hedge funds, private equity companies and other intuitional investors) will usually take a controlling stake in your business.

If you find yourself on the verge of bankruptcy, you might be forced to sell your debt obligations (as bonds) at a large discount. The buyer (investor) will usually end up controlling your business if you survive bankruptcy. The debt will then no longer be distressed and will therefore be valued at a much higher price.

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