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Q3 restructuring review

In our latest quarterly restructuring review our team look at issues affecting the entire market, and share our latest quarterly sector reviews.

Q3 was characterised by a continuing low level of formal insolvencies. With institutional investors holding significant dry powder, market liquidity continues to drive a large number of transactions in the mid-market and a busy corporate finance environment. There is no sign of this abating in the near term.

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High inflation is also an issue. Prices are rising, and central banks are generally acknowledging that inflation may be less transitory than originally anticipated.

At its November meeting, The Bank of England took the decision to hold interest rates despite signalling that there would be a likely bank rate hike. This does look like the sensible option: the UK is still transitioning to a post-lockdown economy, and inflation is supply-driven. Their messaging could definitely have been clearer.

And that's not all the market has to contend with. As we move through Q4, we share our insight on the key issues you have to think about.

Short to medium term issues

Supply chain disruption

Supply chain disruption is still a big issue across all sectors. The shortage of HGV drivers has illustrated that any chain is only as strong as its weakest link. Brexit and coronavirus exacerbated weaknesses that already existed in a logistics industry characterised by thin margins and rising costs. The result is a shortage of consumables, key manufacturing components, order backlogs, delivery delays, and a rise in both transportation costs and consumer prices.

Labour and skills shortage

The economy is suffering from rising labour and skills shortages. Figures from the ONS showed job vacancies were up by nearly 1.2 million in September, a record high. A recent survey of UK business leaders showed that 21% of polled businesses have lost out on new customers or contracts because of hiring challenges. Hospitality and leisure, nursing and social care, and transportation are particularly hard hit. Increasing wages necessary to combat the labour shortage is also placing a burden on businesses.

Unpredictable cash flow forecasts

The unpredictability of the supply chain and consequent sudden changes on input pricing (whether that be commodities or fuel) is making reliable cash flow forecasting extremely difficult. More companies are going to unexpectedly run out of cash and unwelcome surprises might become more routine.

Medium to long term


ESG continues to move up the corporate agenda. Specifically, environmental considerations need to be a major focus for businesses for many years, starting now. Many companies are already setting ESG targets and tracking key performance indicators. Winning business and obtaining finance will become increasingly dependent on achieving these targets.

Companies face significant costs as they look to change their carbon footprint. As lenders and investors focus on the ESG agenda, businesses with higher carbon footprints will face difficulties in raising finance, or only access expensive finance.

Firms will need to navigate disruption to their markets as consumer behaviour changes because environmental concerns and companies innovate to combat climate change.

Uptick in restructuring activity

There should be a gradual return to pre-pandemic levels of insolvencies as the withdrawal of government support starts to bite firms that have been artificially propped up over past 18 months.

It looks like the government will intervene to prevent any systemic sector issues - the continued support for the leisure and hospitality sector point to this. The past 18 months have set new precedents, and political pressure for the government to continue to prop up sectors in difficulty is likely to remain for some time.

It could be advantageous for companies who have taken CLBILS and CBILS, and have the ability, to consider refinancing early as there may be potential difficulties in extending or renewing facilities without giving government guaranteed debt access to the wider security net. Much better for companies to approach this from a position of strength while businesses are performing well.

The landscape of insolvencies

Consistent with our previous quarterly review data, Greater London had the largest number of insolvencies followed by the North West. Northern Ireland had the fewest, followed by Wales.

The majority of regions (London, North West, South East, North East, Scotland, Wales) saw an increase in insolvencies compared to both the previous quarter (Q2 2021) and the same quarter last year (Q3 2020). The South East saw almost double the number of insolvencies in Q3 (1243) in comparison to Q2 (685).

East Midlands and South West saw fewer insolvencies than Q2 2021 but more than Q3 2020, and East England and Northern Ireland saw more insolvencies than Q2 2021 but fewer than Q3 2020. The only region to see fewer insolvencies than it did in Q2 2021 and Q3 2020 was the West Midlands.

The spread of insolvencies by sector has seen little change since our Q2 review. Professional, scientific, and technical activities have overtaken information and communications as the sector with the most insolvencies - arts, entertainment and recreation remains the sector with the fewest insolvencies, followed by human health and social work activities.

All sectors had more insolvencies in Q3 2021 than Q2 2021, and all but one sector (arts, entertainment and recreation) had more insolvencies than the same quarter last year (Q3 2020).

Case study

Saving 1600+ jobs almost overnight

Over the past 12 months, our UK Restructuring team assisted nmcn while it pursued additional funding and a wider equity refinance. But, when its financial situation continued to worsen and the refinancing fell through our team supported in the sale of its construction businesses to Keltbray, Svella and Galliford, saving many jobs in the process.  

Using insolvency to support nmcn

UKR Partner Nigel Morrison and Director Rob Parker swiftly mobilised a team across our Midlands and central England practices, and our UK restructuring experts, to support nmcn and complete the sale of most of their operating business to Keltbray, Svella and Galliford Try.

The transactions secured on-going supply for key utilities, infrastructure and telecoms customers across the country: Highways England, Virgin Media and several national water companies. The sales were completed in a matter of days, meeting the needs of three very different purchaser organisations. One purchaser was a listed business, so confidentiality was crucial.

Nigel said, “We've received great feedback on our role in saving 1,600+ jobs in a very short space of time. Our work demonstrates how an agile response, supported by the power of a national service line can achieve an incredible result without compromising on quality.”

The deal accelerated Keltbray’s plans to build a resilient, growth-oriented businesses, requiring a rapid but collaborative approach. We also assisted in the acquisition of other areas of the business, with Galliford Try buying the water business and saving 900 jobs, while Svella picked up the telecoms, plant hire, transport and accommodation divisions, saving a further 600 jobs.

Rob said, “We're very pleased to deliver these three sales which have helped maintained continuity and minimised the impact for the greater majority of nmcn’s customers, many of which were involved in important infrastructure projects across the UK. It was important to ensure that transactions were completed as quickly as possible, to secure the best outcome for all stakeholders.”

Following the sales, the team's focus switched to realising the remainder of nmcn’s assets, which include freehold property, joint venture residential property developments and collection of amounts due to nmcn.

What happened to your sector in Q3? 

Is your business agile and ready for the challenges ahead? Our quarterly sector reviews look back at Q3 and ahead and share insight from across our firm on what you can expect in the near future. For Q3 2021, we're also introducing a new review for the private healthcare sector. 


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120x120-shaun-ocallaghan.png"There are still many positive signs for the mid-market in the UK, with a significant number of M&A transactions and continuing opportunities for UK companies expanding internationally. An uncertain macro-economic environment with many companies still having uncertainties regarding debt servicing, supply chain issues, and the impact of inflation, could create unwelcome surprises in 2022. Management teams should be dusting off their own contingency plans to successfully navigate this."

Shaun O'Callaghan, Partner

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