Most turnaround advisors are cautiously optimistic that 2012 will build on an uptick in industry activity seen this year, according to the latest Turnaround Management Association (TMA) Trend Watch survey on the state of the turnaround industry.

Approximately four out of 10 respondents said both the number of engagements and projections for estimated income from work performed in 2011 have increased at least 10 percent from 2010, up from about a third in each case based on last year's survey. More than half anticipate revenues to increase by at least 10 percent in 2012, according to results released Thursday during the TMA Annual Convention.

Beneath the guarded optimism, though, lie concerns about an industry that historically experiences an increase in work demand during troubled economic times. This year only 34 percent of those surveyed said traditional Chapter 11 reorganizations constitute their most frequent engagements, while 71 percent said their most frequent engagement involves out-of-court services, underlining a steady rise from 2009, when 42 percent said so. A greater proportion than last year, 31 percent versus 21 percent, said their most frequent engagement involves less costly bankruptcy alternatives, such as assignment for the benefit of creditors, and receivership.

"Frankly, it's not just a matter of the quantity of work industry professionals do, but how the scope of work available supports their firm's business model," saidPatrick C. Lagrange, TMA's immediate past chairman and managing director of Carl Marks Advisory Group LLC inNew York.

"For many professionals who focus on operational turnaround work, where they add the most value is getting their hands dirty working on the things that need to be done to fix a troubled company, whether it's stripping out costs, consolidating operations, improving financial controls, or whatever else is needed," Lagrange said. "Much less of the work we see today is that traditional kind of operational turnaround work. Instead, relatively quick financial restructuring transactions continue to make up a large part of what is getting done.

"The good news for people who do what we do for a living is there is plenty of opportunity for creativity — the bad news is there's a lot of competition," Lagrange said.

Just over a third of respondents (35 percent) said more than half of their engagements entail reorganizing businesses helmed by current owners, down from 39 percent last year. The proportion of respondents who said more than half their engagements involve conducting post-sale operations improvement or merger integration has held steady at 10 percent annually since 2009. Approximately 60 percent of respondents, in each case, said forensic accounting or fraud investigation, expert witness testimony, and post-sale operations improvement or merger integration make up 10 percent of their engagements.

"For some professionals, the whole focus of work now is piecework, a little of this and a little of that," saidThomas S. Henderson, a bankruptcy attorney of an eponymously named law firm inHouston. "It's getting under the hood of a lot of cars."

Banks remain the most likely referral sources for engagements, based on 64 percent of respondents, though advisors also implicated banks as a drag on work flow because of their reluctance to lend or initiate workouts of troubled businesses for fear of losses. Dampening activity further are businesses with the means - liquidity - to delay fixing problems.

"Because the level of economic activity is so low, everybody seems to be just keeping their powder dry and hunkering down," Hendersonsaid. "There is just not enough horsepower in this economy to push business owners into taking actions or making decisions – especially the flawed decisions that can lead to business distress."

After banks, attorneys were the most frequent referral sources, according to 55 percent of respondents, followed by private-equity firms, which had 27 percent of responses, up from 18 percent in 2010.

Nearly six out of 10 respondents said most referred businesses are in late decline and involve manufacturing, according to 62 percent of responses. Construction and distribution businesses rank next, according to 47 percent and 43 percent of responses, respectively. Other industries with which advisors are engaged include:

Real estate — 36 percent of respondents
Service businesses — 33 percent
Retail — 28 percent

The uptick in industry activity has prompted little change in staffing during the past 12 months, based on 55 percent of responses, similar to last year's. Nearly all participating advisors (84 percent) work at firms or within divisions employing 50 or fewer employees. Three-quarters of respondents said fees charged by restructuring advisors have stayed the same or decreased.