HIG Capital sees potential in European distress

LONDON (Reuters) - Europe's battered corporate sector is an opportunity for investors willing to inject new capital and help turn around struggling companies, HIG Capital's joint head of UK practice Matthias Allgaier said on Tuesday.

Many private equity firms are struggling in the downturn to support their portfolio companies, paving the way for distressed asset investors to step in.

"Most traditional private equity firms do not have the skill set to be able to turn around a company, it requires very different skills than when aiming for growth," Allgaier said.

Investment fund HIG Capital, which began operations in Florida in 1993, last year raised $3.5 billion for its affiliate fund Bayside Capital to invest in distressed securities.

About a third of this will be invested in Europe in the next three to five years, alongside HIG's 600 million euro European buyout fund, Allgaier said.

On Monday, HIG Capital and Bayside secured a stake in Netherlands-based VNU Media alongside private equity firm 3i (III.L), which previously owned a majority stake.

The pair injected 17.2 million euros of capital into the company as part of a wider restructuring of VNU's debt load.

"We anticipate completing many more such recapitalisations in the current difficult economic environment," said Allgaier, adding he is considering a number of similar investments before year end.

RESTRUCTURING WAVE

In recent weeks, Europe's lenders have taken an increased interest in swapping loans to struggling companies for equity stakes, as the first phase of Europe's debt restructuring wave begins to break.

"In a lot of cases restructurings need a catalyst in order to get done, and very often this catalyst is the requirement of new capital," Allgaier said.

HIG looks to invest in small- to medium-sized firms and has a particular focus on operational turnarounds in the UK and western Europe.

"We do not just make an investment and then wait a year to see what happens," Allgaier said.

Globally, HIG is invested in about 60 companies across a wide range of sectors. HIG is generally "sector agnostic" Allgaier said, though it is avoiding real estate and does not focus on retailers.

The fund looks to invest in situations where a company can be turned around quickly as the market recovers, Allgaier said, which often means a firm with a strong market position.

Many of the fund's investments are made by buying up debt at a discount. Sometimes this will end up as an equity holding through a restructuring, but such swaps are not the sole reason for HIG buying up the debt, Allgaier said.

"When buying the debt it has to make sense as an investment in its own right," Allgaier said.

(Editing by Andrew Macdonald and David Holmes)