Midas is the latest in a long line of regional contractors to feel cash pinch

The collapse of a business these days is almost always aided and abetted by the rumour mill. That is what Glyn Mummery a partner at FRP Advisory told Building two years ago when his firm was handling the administrations of two casualties to hit the headlines in 2019 – Simons Group and Shaylor, which between them had accumulated 125 years of trading.

“The speed of the rumour mill can be ferocious,” he said. “If there is a cash pinch and creditors go unpaid, people can start sharing information and the speed at which a business can decline is frightening.”

A couple of years on and a pandemic later, Mummery’s observation still resonates. “We started hearing from subcontractors that payments were slowing down at the start of December,” says one firm speaking about Midas, which collapsed into administration earlier this week after being set up in the 1970s.

Hopes of a rescue came to nothing

At the end of last month, it emerged it had filed a notice of intent to appoint an administrator.

Clients and the supply chain were spooked further but the Midas management struck a defiant tone in the days afterwards, issuing a public statement saying: “This does not mean that Midas has entered into administration and the company continues to operate, while the directors work to explore all available options to achieve the best outcome for the business.”

Suggestions other contractors were looking at buying up parts of the business came to nothing. “We’d rather grow organically than clear up someone else’s mess,” one firm told Building.

The property maintenance bit of Midas, called Mi-space, was snapped up this week by rival Bell Group, a £100m turnover Scottish business with a national network that had been looking to open an office in Exeter where Midas is based.

A lot of these people now won’t get paid and many of them are very small businesses, family businesses

Tim Jones, South West Business Council

But for the rest of the business, including its dominant construction arm, the inevitable happened on Tuesday: the administrators were in charge and 300 people had lost their jobs in a flash.

Others have been affected, too. The supply chain is thought to be owed millions.

Tim Jones, chairman of the South West Business Council, says the collapse has been “a huge shock to the construction industry and to the South-west economy”.

He adds: “A lot of these people now won’t get paid and many of them are very small businesses, family businesses.”

What brought Midas down?

Typical reasons for a firm failing, FRP’s Mummery told Building in 2020, include “weak management, weak management information and [lack of] cash in the business”. Uncertainty caused by Brexit then and now was a factor, too.

And these cautionary words were spoken before covid had even hit. Announcing the demise of the company he has been at for more than 20 years, Midas’s chairman Steve Hindley said: “The disruption and supply chain inflation caused by the covid-19 pandemic resulted in a number of critical contracts being postponed or cancelled. The resultant impact on the Group’s working capital led to severe liquidity pressure and meant the Group was no longer able to operate.”

Rivals say Hindley has a point but some make the case that not everyone has sunk because of covid. “Brexit, inflation, covid, they’re all valid up to a point,” says one. “But if you’re weak in the first place, then these things won’t help.”

Fraser Johns is the finance director of Beard, a regional contractor which operates in the same region as Midas.

“Various factors, including the pandemic have caused materials and labour costs to rise, and this has made pricing projects incredibly challenging,” he says. “We have found having open and honest discussions with customers has been – and continues to be – essential to addressing the volatility of material prices.”

He adds: “While we have avoided any serious delays to projects driven by covid, it certainly has tested our processes and procedures, which in turn have been strengthened through new ways of thinking.”

Other collapses

Midas’s demise is the biggest since NMCN, the listed building and civils firm formerly known as North Midland Construction, which sank last October. The £400m turnover business had been on the brink for months ever since it told the stock market in September 2020 that its then chief executive, John Homer, had gone. On top of that a series of problem jobs and delays in getting auditors to sign off its 2020 accounts saw its shares suspended at the end of June last year.

A rescue deal hinged on the accounts being signed off but revised deadlines came and went with the firm collapsing at the start of October.

Most of the business was picked up by rival firms with Galliford Try snapping up its £100m water arm, business rescue specialist Svella, which had agreed a refinancing deal with the stricken contractor, picking up NMCN’s telecoms, plant hire, transport and accommodation divisions and Keltbray taking on 10 highways, flood alleviation and renewable energy jobs.

Significantly, given Midas was a building business, the administrators could not find a buyer for NMCN’s building arm and 80 jobs were lost.

Making it as a regional contractor

One firm who might have been expected to run the rule over Midas decided against. “They don’t do anything we couldn’t do.” Another added: “They didn’t have specialisms we don’t have.”

Firms are feeling the pinch now, says John Bell, senior partner at Clarke Bell Insolvency Practitioners in Manchester, for several reasons. “Rising raw material prices, supply chain disruptions, historic debts built up during the pandemic, labour shortages and being tied to fixed-price contracts while the rate of inflation is rising,” he says.

“It is the combination of these difficult factors that is leading to so many construction companies going insolvent and being liquidated.”

Last week, Aecom said that London’s biggest contractors were turning down the chance to bid half the schemes they are asked to price because of worries they will be lumbered with loss-making jobs.

It added that contractors do not want to fix prices because of concerns they will be saddled with jobs where costs run out of control. “Simply put,” the report said, “contractors and their supply chain will no longer accept blind risk or fail to price in the risk of a cost spike.”

Is there, then, anything that can mark out a regional contractor against a national player? Some think not, with a number suggesting that regionals can only differentiate on prices.

Others are not so sure. “The appeal of a regional is that it’s well-connected and can be more attractive to client’s requirements,” one national firm said. “The client is not just another client. Some regionals are good because they play to the benefits of being a regional brand.”

Beard’s Johns adds: “Our suppliers and subcontractors are an essential part of the projects we undertake and fostering close relationships through regular meetings and prompt payment has been crucial.

“There are likely to be more challenges over the course of the year, but it feels as if we are in the final third of the pandemic. Looking ahead, by getting the fundamentals right, we can continue to successfully navigate any market volatility and uncertainty like we have over the past 24 months.”

Nonetheless, pandemic or no pandemic, Brexit or no Brexit, one thing remains true. In the end, as Midas said this week, what brings a business down is cashflow.