Middle market companies, or those with a total enterprise value of up to $300 million, may offer the best opportunities for distressed investors now. Investors argued lenders aren't as quick to buy back into middle market, as opposed to larger cap turnarounds, which is leading to opportunity in an otherwise rich market. "There's a lot of potential upside [in middle market companies]," said Ben Emmons, v.p. at Sun Capital Partners, a Boca Raton, Fla.-based private investment firm specializing in leveraged buyouts. He is looking to invest in distressed credits in cyclical industries such as restaurants and retail.
Anthony Disimone, principal at Bayside Capital Opportunity Fund, a $500 million investment vehicle in Miami focusing on lower middle market companies, looks at underlying service businesses which are asset-light. "We play much more in the service industry where cash flow is higher than liquidity value," he explained. Disimone noted, however, there is an extra element of risk when dealing with smaller entities. "With middle market companies who file bankruptcy, there's no presumption you're going to be around," he stated, noting while these investments have the potential for high returns, they can just as quickly result in disasters.
EagleRock Capital Management takes a passive approach through the secondary market, said Peter Lupoff, managing director and co-portfolio manager of a distressed and high-yield portfolio in New York. He prefers to invest in brands with name value that won't disappear. "There's no presumption that Interstate [Bakeries] is going away; there's no argument they're not going to exist," he said, noting EagleRock will be an active player in credits such as Interstate.