EY appointed administrator for vehicle hire firm

10 April 2018 Consultancy.uk

Hundreds of UK workers have lost their jobs after a vehicle-hire firm collapsed. As TOM Vehicle Rental was forced into liquidation, Big Four firm EY was appointed as administrator.

Scottish vehicle rental firm TOM has announced that it has filed for administration, after a protracted sales process found no buyer for the debt-ridden company. TOM previously provided long-term rentals of vans, trucks, trailers and cars as well as operating franchised dealerships under the Mercedes Benz and Citroen brands.

TOM’s collapse comes as the latest in a succession of private equity owned firms which have filed for bankruptcy, including children’s retailer Toys R Us and teenage fashion store Claire’s. TOM has been majority-owned by Equistone Partners Europe for the past 15 months, although the private equity firm suggests that it was not at fault for the collapse. Equistone is one of Europe’s leading mid-market private equity investors, and recently announced its investment in Willerby, the UK’s foremost manufacturer of static holiday homes.

EY appointed administrator for vehicle hire firm

Throughout the duration of its ownership of TOM, Equistone asserts that it injected additional capital into the business to mitigate the company's cash-flow pressures. A statement from Equistone also said that the group had worked closely with TOM's board and external advisors to address operational issues. However, TOM’s cash position did not improve sufficiently to meet the company's repayment schedule on its existing operational loans, which were in place prior to Equistone's ownership.

Now, administrators from professional services giant EY have been appointed at the company, in the absence of any proposals for running TOM as a going concern that were deemed viable by its lenders. The appointment signaled the termination of some 361 jobs from TOM’s other UK locations – Aberdeen, Ayr, Broxburn, Dundee and Nairn, and another five in England – with 86 members of staff remaining at TOM’s Airdrie headquarters for four weeks to assist the administrators, before being let go. A total of 21 posts associated with a third subsidiary, Alistair Fleming, based in Kilmarnock, will meanwhile be transferred to a new company – in a practice known as “Phoenixing”.

A spokesman for EY said, "Unfortunately, no suitable interested parties emerged from the sale process due to the scale of the losses and the investment required to turn the business around. Due to the group's lack of liquidity and increasing pressure from creditors, the directors had no option but to seek the appointment of administrators."

Joint administrator Colin Dempster added, "It is with regret that 342 people have been made redundant. Our specialist team will work with those affected to help them claim outstanding wages and other payments due from the redundancy payments office."

Related: EY to administrate Carillion as construction outsourcer collapses.


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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.