KPMG waves away buyout interest in UK restructuring unit

08 October 2018 4 min. read

International auditing and advisory firm KPMG is understood to have rejected informal bids to purchase its UK restructuring business. Rumours had circulated that the professional services giant was set to offload its corporate turnaround wing; however, the firm’s British leadership is keen to hang on to a major fee-earning operation amid booming demand in the UK.

A turbulent period in the UK has seen a growing number of companies across multiple industries either forced to restructure, or file for administration. Anxieties surrounding an uncertain outcome of Brexit negotiations, stagnant wages hampering consumer demand, and sluggish productivity growth have all taken a toll on customer-facing businesses in the last 12 months. While this has been most prominent in the retail segment, it has also impacted on the casual dining sector, the travel industry, and the construction and manufacturing arenas, among other areas.

In this troubled economic environment, the demand for the restructuring services of consulting firms has spiked dramatically. To that end, Big Four professional services firm KPMG has been often sought after for its offering in this segment of the consulting industry by a diverse range of clients. Over the past 12 months, the firm has been engaged in the administrations of collapsed airline Monarch and the historic Towcester Racecourse, among other entities, while having also been recently drafted in by ailing retailer Debenhams to help draw up restructuring plans, as the store looks to avoid the same fate as House of Fraser.

KPMG waves away buyout interest in UK restructuring unit

Perhaps understandably, the demand for these services has led to KPMG’s restructuring unit being viewed by a number of would-be suitors as an item for their wish-lists. According to reports in the British press, this has seen KPMG's UK leadership sounded out by buyout firms over the course of recent months about a potential takeover of the unit, which advises clients on debt and equity-raising activity during periods of financial distress, as well as supervising insolvency processes such as Company Voluntary Arrangements.

The audit market of London had been rife with speculation since the summer that KPMG was considering the sale of its UK restructuring business or even its wider deals advisory division, which is said to have attracted the interest of Hellman & Friedman, a former owner of AlixPartners. Informal approaches are meanwhile  thought to have come from private equity investors, including Permira, which paid $1.7 billion in 2017 to similarly take control of Duff & Phelps. The consultancy was likewise heavily involved in the restructuring scene, and notably acted as the administrator to high-street retailer BHS.

In the case of KPMG, however, the overtures are understood to have been rebuffed, with KPMG’s UK Chair Bill Michael keen to maintain control of a significant fee-earning operation, as business booms. Sources told the media that KPMG had conducted a review of the restructuring operation, which included examining the impact of a sale on the firm's remaining transaction-related business, and had decided not to pursue an auction, with one insider remarking that a bid for KPMG's deal advisory arm would in any event need to value it at "many hundreds of millions of pounds" to be successful.

The alleged considerations of cashing in on KPMG’s restructuring wing come as the Big Four in general are facing increasing pressure to divest from their non-accounting activities in the UK. This comes after the quartet have been stung by a succession of investigations, fines, and accusations of conflicting interests, as they hold both consulting and accounting capacities, which could cross over when relating to large clients. KPMG was hit with multi-million fines from the audit regulator in relation to work carried out on companies such as Ted Baker and Quindell, while a record penalty was imposed this year on PwC for its auditing of BHS.