Ailing Interserve hires Oliver Wyman, PwC and EY

30 October 2017 Consultancy.uk

Numerous reports have emerged over the course of October of construction-related professional services firm Interserve appealing to City consultants to advise on their dire financial situation. EY, PwC and Oliver Wyman have all now been tapped by either the company or its lenders, following a dramatic slump in its share value in September.

Oliver Wyman has been hired by Interserve to overhaul its operations. Thanks to increasingly competitive markets, the cleaning-to-building group is grappling with poor trading and climbing costs while shares in Interserve tumbled more than 30% following the embattled firm’s suggestion that it might breach its banking covenants – as operating profit in the second half of the year was set to be around 50% lower than previously expected.

The international consulting giant that advised bust airline Monarch before it filed for bankruptcy has been drafted in to help save Interserve via a debt restructuring scheme. Having been enlisted to arrest a stuttering performance that had plagued the airline since Greybull Capital bought it for £1 in October 2014, Oliver Wyman’s revamp strategy failed, after a bid to transform Monarch into a long-haul carrier service proved fruitless. KPMG were eventually enlisted as administrators for the proceedings, as the airline wound up last month, adding 1,272 people to the UK’s national unemployment queue.

Ailing Interserve hires Oliver Wyman and PwC and EY

Interserve’s hiring of Oliver Wyman follows on the back of sustained pressure from concerned lenders. Earlier in October, a consortium of the firm’s backers, including RBS and HSBC, recruited EY as economic advisors amid fears their debts would not be repaid. In response, Interserve also hired fellow Big Four accounting and consulting firm PwC as economic advisors, to negotiate with the lenders over the future restructuring of the debt.

Following the appointment of the world’s largest consulting firm, Interserve CEO Debbie White said, “Despite our challenges, Interserve has a strong client base and many strengths as an organisation and I believe there is considerable potential for business improvement across the company.”

However, the company also commented in a statement that, due to profit deterioration in its construction services, “We now believe there is a realistic prospect that we will not meet the net debt to EBITDA test contained in our financial covenants for 31st December 2017.”

Weakened foundations

The multinational support services and construction company based in the UK previously boasted a revenue of £3.2 billion in 2015, and a workforce of more than 80,000 people worldwide. The possibility of the group going belly up presents a major economic and political problem for Britain in particular, with the country’s government facing a £26 billion budgetary hole following the International Monetary Fund’s announcement in July that due to "weaker-than-expected activity" in the first three months of the year, the UK economy would only grow by 1.7%, compared to a previously anticipated 2%. However, while the government might be planning to curb departmental spending in the future, Interserve was recently boosted by news that it had secured a five-year facilities management deal worth £227 million with the Department for Work and Pensions, with the firm’s shares bouncing almost 17% as a result – having seen 80% of their value wiped out since the beginning of 2017.

However, the vultures continue to circle, with hedge funds, having turned their attention of the Reading-based firm, having booked tens of millions of pounds in profits from the failure of Interserve’s rival Carillion. Now, as they seek to repeat their former successes, short-sellers have rushed to borrow the group’s stock in recent weeks to bet against its fortunes. At the end of the summer, less than 1% of Interserve’s shares were on loan, a figure that has climbed to over 12% since then, suggesting that the market is still anticipating the company’s demise in spite of its hiring of external expertise.

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