PwC administrators preserve M40 flow despite Carillion debacle

04 February 2019

In its capacity as administrator for the collapsed outsourcing firm Carillion, advisory and auditing giant PwC was tasked with rapidly replacing the firm for a number of keystone service contracts. According to Partner Sarah Taylor, PwC was keen to avoid a panic sale however, particularly when it came to finding a new firm to assume Carillion’s duties connected to the M40 motorway.

Construction outsourcer Carillion filed for compulsory liquidation at the beginning of 2018, sparking a scandal that ran the length of the year. The company, headquartered in Wolverhampton, United Kingdom, had run into trouble after losing money on big contracts, as well as racking up unsustainable debts totalling around £1.5 billion – and though it flagged this up in a succession of profit warnings, the UK Government continued to award it work.

As a result, when the firm finally did collapse, its failure meant the Government was also forced to provide funding to maintain the public services formerly supplied by Carillion. Such was the extent to which the Government had relied on the outsourcers, Defence Secretary Gavin Williamson convened a meeting of the Cobra emergency committee – which had last assembled in the wake of the Parsons Green Tube attack – to discuss the situation.

PwC administrators preserve M40 flow despite Carillion debacle

Carillion is involved in major projects such as the HS2 high-speed rail line, as well as managing schools and prisons. It is the second biggest supplier of maintenance services to Network Rail, and it maintains 50,000 homes for the Ministry of Defence. It was also heavily involved in the maintenance of the M40 – a motorway connecting the major population centres of London and Birmingham – holding contracts for the upkeep of the major transport artery between junctions 1-15.

Big Four professional services firm PwC was tasked with the administration of Carillion following its high-profile fall from grace. Faced with the scale and diversity of Carillion’s public contracts, time was very much of the essence, however, the professionals were also mindful that an ill-thought out sale of Carillion’s contracts could impact vital services further.

Carillion’s M40 maintenance contract was a key example of this. During its long-term, critical service agreement, the company was due to provide both routine maintenance and additional services on a priced works order basis. That included ditch and verge maintenance, winter maintenance, like gritting ahead of snow-fall, and emergency response work including crash barrier and make-safe repair. Posting on careers network LinkedIn, Sarah Taylor, Partner at PwC, outlined how the firm went about the tricky proposition of finding a new outsourcer for the contract.

“Working quickly, we ran an accelerated sales process to protect jobs and ensure continuity of service,” Taylor explained. “Rather than a desperate fire sale, we used our network to run a competitive auction, resulting in the contract’s purchase by Egis. Due to required lender consents, our team successfully managed a lengthy period of operation following the agreement of legal documentation with Egis – this effective deal management mitigated the risk of non-completion and safeguarded 95 jobs.”

Despite quality as well as speed being paramount, according to Taylor, the process concluded just two months after the appointment or PwC as Special Managers. She concluded, “It was our agility as a team – our Tax, Corporate Finance, and Business Recovery Services teams all worked together as a single entity – as well as our global network, that enabled us to successfully negotiate a transitional service arrangement, sales and purchase agreement, and customer and lender consent in such a short amount of time and with no major disruption to this important part of the country’s infrastructure.”



8 tips for successfully buying or selling a distressed business

18 April 2019

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.