Insolvencies in the UK m&e contracting market set to soar

One in ten m&e contracting firms are at risk of going under unless they take drastic action.

Analysis of the top 1000 m&e contracting firms by business intelligence specialist Plimsoll Publishing suggests that it’s not too late to save many of the 104 it rates as being at high risk of failure. However the new report comes with a warning: if these companies are to survive, they must start to fix their problems now.

David Pattison, senior business analyst at Plimsoll, gives his views on what these companies should be doing to ensure their survival.

“Administration should be viewed as a clear last resort. The damage done to the long-term health of the company in terms of the brand and negative publicity are all too difficult to recover from.

“In essence, the key to avoiding administration is to put in place yourself the measures that they would instigate.”

Pattison puts forward a three-pronged strategy:

Cut costs now

“This is not easy; it means the company must accept it will be a smaller enterprise. Internally this will not be well received in the organisation, as job losses will generally be part of the plan. It then needs to look at a survival plan and adopt the mindset of a receiver, cutting out non-profitable contracts, reducing overheads and also renegotiating with key suppliers. The objective must be to reduce the level of debt and get the business back on an even keel.”

Sell the company or look for an investor

“Despite the doom and gloom in the market, this option should not be ruled out. 537 firms identified in the sector have cash to spend and could easily afford to finance a purchase out of cash. These 104 companies in danger are very vulnerable to an aggressive takeover, yet my view is there could be a great benefit in selling up. A new owner would give the company time and resource to turn their performance around. Sadly again, this will inevitably involve job loses and reducing the size of the company to rejuvenate the business.”

Trade their way out

“In the current economic climate this is the least likely strategy. Most of these 104 companies have fairly long-term problems, so its clear their current business is not competitive in the market and simply doing the same will not change anything. Combine this with the inability to raise extra finance and time is not on the side of this approach. Only a few of these companies have this as a viable option.”

Copies of Plimsoll’s analysis are available for £350 by calling Clair Sherwood on 01642 626400 or emailing c.sherwood@plimsoll.co.uk