KPMG could rebuild restructuring business after sale

Big Four firm KPMG is reportedly creating a new unit to advise on corporate restructurings, less than a year after selling the its UK insolvency advisory business for more than £350 million. The move was reportedly motivated by new competition laws that made it harder for KPMG to profit from its non-auditing services.

Following months of speculation, a deal was brokered in early 2021 to enable a £400 million carve-out of KPMG’s restructuring wing.

Backed by investment firm H.I.G. Capital, the insolvency business rebranded as Interpath Advisory, and is now led by KPMG UK’s top restructuring partners from the time, Blair Nimmo, Will Wright and Mark Raddan.

The decision to sell the business was driven by the significant changes in the Insolvency and Restructuring market in the UK over recent years. Most prominently, the nation’s audit watchdog the Financial Reporting Council (FRC), effectively banned KPMG, Deloitte, EY and PwC from conducting advisory work for audit clients in the wake of a number of accounting scandals.

This split left many in the Big Four firms feeling the conflicts issue would inhibit the future growth of restructuring operations for as long as they are owned by them – leading them to consider cashing out.

However, demand for insolvency work had been spiking across Britain – and with the UK’s coronavirus support measures set to wind down, there is expected to be a growing need for restructuring services in the coming months. In this context, it has been suggested that KPMG is trying to have its cake and eat it too. According to reports from Sky News, the firm has appointed David Fletcher, a veteran in the UK restructuring market, as an Associate Partner in its deal advisory team.

The appointment has raised questions in the sector about whether KPMG plans to build a full-service competitor to other major accountancy firms and independent players. Sources close to the sale of Interpath have stated KPMG agreed a three-year non-compete deal with Interpath in the insolvency market, according to a person close to the recent sale – and in line with this, Fletcher is not a licensed insolvency practitioner.

However, insiders have also acknowledged that his work in KPMG's special situations team would include work with clients which are facing "some element of financial difficulty."

While he would not be taking on administrations then, he could lay the ground work for rebuilding the restructuring arm over the coming years. At the same time, according to Sky News, Fletcher is said to have refused to rule out rebuilding an insolvency team, once the non-compete agreement expires.