Ian Ratner from BTGGA member firm GlassRatner was invited to join Richard Goldman on Debtwire's Middle Market Podcast, in an episode titled ‘The Business of Mid-Market Restructurings’. Here are some of the highlights:
Regarding his expertise in the unique role of an expert witness, Ian says it can get lonely without the support of his team or colleagues. He explains that an expert witness has to be independent, so must remain objective, and talks briefly about his role in the BP oil spill case.
Ian spends some time focusing on recent developments that have changed how mid-market restructurings occur, which include: increased and unchallenged costs, complicated capital structures and advisory competition and private equity ownerships.
With some strong views on the current fee environment, Ian is an advocate for transparent fees and states that they should all be open for review. A lot of good mid-market restructuring can be done on fixed fees, and it is important for the buyer to find the right adviser for the right deal. GlassRatner in particular have built their practice by focusing on good value for money.
Ian also discusses the burgeoning litigation financing industry which gives opportunities for people to pursue cases that would generally not have a source of finance. As a result of litigation funding, there has been an increased number of cases and expert witnesses.
On the growth of PE ownership, Ian explains how this has created a lot of demand in the mid-market, and mid-market PE firms. These rely heavily on the likes of GlassRatner and B. Riley to help them out of distressed deals. The impact of PE ownership in secondary and tertiary markets, where there are smaller operating companies, has created a lot of businesses with orphan management. This means there is a lot of need for outsourced solutions in the PE world as their capital structure is more complicated.
The 2007/08 financial crisis saw many financial execs being let go from larger firms, such as Lehman Brothers and Bear Stearns, and these groups of people set themselves up as advisers, creating an increase in advisory competition. A lot of these advisers have returned to their traditional line of work, but some have stayed in advisory as they have seen it has a strong margin and provides a good cash flow.
Ian gives his perspective on the economy, and states that the next financial downturn may be different from the last, in 2007-09, in that we didn’t really know what was happening. However, now we are seeing segments which are in trouble, for example the automotive retail space is in trouble, and healthcare is significantly overbuilt. Ian doesn’t believe that we are going to have a system-wide economic crash as our capital markets are too sophisticated and there’s too much capital. Yes, real estate prices are high but it doesn’t mean we are going to have a crash. There is a lot more equity in real estate now than the lead up to 2007. Ian does believe that there are going to be certain segments in trouble, such as retail, but there won’t be a major meltdown.
To listen to the Podcast in full, please click here.