Turnaround Capital

Turnaround Capital is deployed into companies with impaired performance—margin collapse, operational breakdown, debt pressure, or strategic drift—where a credible plan can restore profitability and enterprise value. Turnaround investing can be control equity, preferred equity, or structured credit, but it is always execution-heavy and time-sensitive.

The underwriting focus is on fixability: what specifically is broken, how quickly it can be corrected, and whether the organization can execute change without losing customers, talent, or operational continuity. The best turnaround strategies combine operational expertise with strong governance and a capital structure that can survive the transition.

How allocators define turnaround risk drivers

• Root-cause clarity: operational vs demand vs pricing vs product vs governance
• Leadership replacement risk: management changes and cultural reset
• Liquidity runway: ability to execute transformation before cash runs out
• Customer retention: churn risk during disruption and service issues
• Cost takeout feasibility: timing, one-time costs, labor constraints
• Capital structure friction: covenant pressure, stakeholder consent needs
• Execution velocity: 100-day plan realism and KPI ownership

Allocator framing:
“Do we know exactly what’s broken—and do we have the right team and runway to fix it before the business deteriorates?”

Where turnaround capital matters most

• post-cycle drawdowns where good assets are mismanaged or overlevered
• carve-outs with stranded costs and weak systems
• businesses with fixable operational issues but temporary market skepticism

How it changes outcomes

Strong discipline:

• generates outsized returns through operational recovery and rerating
• protects downside with governance control and conservative runway planning
• builds durable earnings quality that persists beyond the cycle

Weak discipline:

• runway is underestimated; new capital becomes “good money after bad”
• execution slips, churn rises, and margins don’t recover
• stakeholder friction delays key actions (asset sales, layoffs, refinancing)

How allocators evaluate discipline

They trust managers who:

• can articulate the operational diagnosis in concrete terms
• have turnaround operators (not just financiers) and proven playbooks
• set measurable milestones and report progress transparently
• plan for disruption costs and conservative timing, not best-case speed

What slows decision-making

• unclear root causes and reliance on management narratives
• insufficient detail on customer churn and service performance
• lack of true liquidity/runway analysis including restructuring costs
• uncertain stakeholder dynamics and consent requirements

Common misconceptions

• “Cheap entry guarantees returns.” → execution and runway determine outcomes.
• “We can cut costs quickly.” → cost takeout has constraints and timing.
• “Turnaround is just a new CEO.” → leadership helps, but systems and process matter.

Key allocator questions during diligence

• What are the top 3 root causes and what proves the diagnosis is correct?
• How much runway is truly available after restructuring costs?
• What are the first 90 days actions and measurable milestones?
• How do we protect customer retention during change?
• What is the downside outcome if recovery takes 12 months longer?