There has been a fundamental shift in the insolvency and restructuring profession, with smaller accountancy firms voicing a growing sense of unease. Catrin Griffiths reports on the firms that have come out on top
The insolvency practitioner in the Spanish hotel bar is getting hot under the collar. “This turnaround stuff is all very well for the big firms,” he complains. “But for the vast majority of us it’s irrelevant.”
He is voicing a growing sense of unease on the part of insolvency lawyers and accountants in smaller firms – an unease that began to manifest itself at the profession’s annual conference in the Spanish coastal town of Sitges at the end of May this year.
The conference – traditionally a centrepiece on the insolvency and restructuring circuit – was particularly significant this year because it was the first time that the former Society of Practitioners of Insolvency (SPI)had met as the rebranded R3 (the Rs stand for rescue, recovery and renewal).
The name change is not just cosmetic. It represents a fundamental shift in the insolvency and restructuring profession. Benign economic conditions and the dramatic drop in insolvencies has left the profession with a much diminished role. Hence the emphasis on turnaround and restructuring, and the effort of larger firms to bring their insolvency experts in further up the food chain.
The likes of Ernst & Young have brought their corporate recovery and corporate finance teams together in an attempt to provide a seamless service which takes account of restructuring issues. It is a concept that has also been aped by medium-sized firms such as Baker Tilly.
Indeed, although larger accountancy firms such as KPMG and Deloitte & Touche have led the turnaround charge, it is not just the accountancy giants which are keen on the concept. For example, medium-sized accountancy firm Levy Gee is strongly associated with turnaround, in particular for owner-managed businesses.
Yet in the face of all this, R3’s repositioning has not met with wholehearted support – despite considerable lobbying on the part of the SPI/R3 leadership, spearheaded by such luminaries as Ernst & Young’s Alan Bloom and Herbert Smith’s Stephen Gale.
Smaller firms, which form the backbone of R3’s membership, tend to concentrate on liquidations and trade sales. These smaller “non-bank” firms, which derive their work from local businesses or professional referrals rather than from clearing banks, tend to handle liquidations and are active in rescuing businesses and jobs, perhaps through CVAs or administrations, or effecting trade sales. The Insider’s Guide to Corporate Rescue & Insolvency identified David Rubin & Co and Harris Lipman in London, Poppleton & Appleby, O’Hara & Co and Jacksons Joliffe Cork in Yorkshire and Jennings Johnson on Tyneside as the leading firms of this type.
They and others of their type handle the sort of work that larger firms find simply too uneconomic, but they form the lifeblood of the local business community. And they tend to be very attached to the politically correct word “insolvency”.
The non-bank firms also formed the bulk of conference attendees in Sitges – hence the spate of grumbling in the hotel bar.
In the meantime, many of the larger accountants have reduced their practices. Arthur Andersen did it a couple of years back, Ernst & Young did it last year, and PricewaterhouseCoopers announced a reorganisation earlier this year.
Yet the larger firms also have to cope with a difficult balancing act, particularly outside London. After all, when faced with a reduced team clients – whether lenders or corporate debtors – may feel tempted to go to different advisers. Indeed Arthur Andersen, and now Ernst & Young, have to contend with the constant refrain that they are “pulling back” from the regions.
Yet scaling down resources does not necessarily mean firms are out of the picture. Look at Arthur Andersen, which last year landed the plum insolvency job of TransTec (though it must be said that many believe much of that was down to John Talbot’s stellar personal reputation).
Indeed, the big five – big six if you count Grant Thornton, which in this sector many do – have had solid years.
With their resources, they can field teams to handle the complex restructuring jobs both domestically and overseas. KPMG and in particular PwC are adept at exporting their restructuring practices, for example. And the clearing banks are still more than happy to use the big six firms.
Of the big firms, PwC, KPMG and Arthur Andersen have had good years. PwC is strong across the board, as the ratings will show, and has a raft of stars – although the Insider’s Guide noted that it will have to watch its growing reputation for arrogance.
KPMG is one of the best all-round firms, whose very solidity is impressive, and it has a clutch of younger people beginning to make their mark.
Arthur Andersen bounced back last year – it still cannot match the resources of a number of its big six competitors, but it increased market share considerably and is now considered to be back on a par with Ernst & Young, Deloitte & Touche and Grant Thornton. Ernst & Young made the difficult decision to let go of a number of partners, Deloitte & Touche had a solid year but appears to be getting over-identified with one man, Nick Dargan. And Grant Thornton, which was last year’s hot stock, had a quieter time of it (although it continued to raid smaller competitors, notably Robson Rhodes).
The picture is more mixed for the medium-sized firms. It is these firms which are concentrating on potential business from the sexy new market of factors and invoice discounters. BDO Stoy Hayward identified this early, and is in the enviable position of market leader.
Other players such as Horwath Clark Whitehill and Kroll Buchler Phillips have also made inroads into this area, although the big- six (with the honourable exception of Grant Thornton) appear so far to have ignored factors and invoice discounters.
Other mid-sized firms stand out for other reasons. Baker Tilly has made a virtue of servicing the SME (small and medium enterprises) market, while Levy Gee has rightly attracted praise for its embracing of the rescue culture in the context of smaller businesses.
Of the other mid-size players, Pannell Kerr Forster attracts strong comments (both positive and negative), but has concentrated on building up strong local service on a national level. Robson Rhodes, which has suffered a slew of partner defections, has nevertheless maintained a decent reputation among lenders.
The rescue culture has also spawned some smaller firms which are active in drumming up fresh capital for troubled businesses. The MacDonald Partnership is one (it has even set up a turnaround finance website), Ford Campbell in Manchester is another.
Arthur Andersen advises most of the major clearing banks, but has strong links with NatWest and HSBC. Workouts have ranged from £1m to £300m, but are usually concentrated in the £5m to £20m range. After a turbulent couple of years, the formal insolvency side of the practice made a comeback last year and included the receivership of TransTec. However, there is a question mark over how much the firm’s landing of TransTec was down to insolvency star John Talbot, now a consultant at the firm.
Although the practice is mostly concentrated in London, the Manchester and Leeds offices have held their own.
Deloitte & Touche
Deloitte &Touche had a number of high-profile insolvency jobs in London last year, the most prominent of which was the administration of Debonair (with CMS Cameron McKenna) handled by the ebullient Nick Dargan. The restructuring side is solid – it has good relationships with the Scottish banks and with Barclays. Its niches include hotels (it handled the Westerwood and Chasley hotel receiverships last year) and nursing homes.
Ernst & Young
Ernst & Young radically changed its positioning last year from insolvency to restructuring. Several partners left and the corporate recovery division was amalgamated with the corporate finance division. Insolvency jobs have been relatively run-of-the-mill of late, with the exception of biotech company Axis (with CMS Cameron McKenna) – the first biotech company to go into administration. Having handled this, Ernst & Young is well placed to take on other jobs in the sector, particularly considering the firm’s general expertise in life sciences.
Grant Thornton is strongest on insolvency work for lenders, principally in the mid-market, although on the restructuring side the firm has advised on a number of workouts where the level of debt reached hundreds of millions. It has one of the most consistent reputations nationwide for bank work, with particularly strong presences in Newcastle and the North West. It is one of the few firms to experiment with sector specialisation, notably motor retail and agriculture.
KPMG is generally regarded as one of the most cohesive practices around, with strength at the top end for major lenders, to a solid base in the low-to-middle market, plus a strong national network (its Birmingham office is particularly strong).
The restructuring side is strong both for debtors and lenders. Last year, KPMG advised a number of debtor companies on situations where the debt ran into millions and billions of pounds – this was also the case on the workout side for bank clients. It has a strong international restructuring practice, particularly in Russia where Tony Thompson leads the field, with Rossiyskiy kredit and Unexim on the CV. On the insolvency side, KPMG acted on the provisional liquidation of satellite business ICO, and it has a good business in insurance – recent schemes of arrangement include Anglo-American (with Clifford Chance).
The giant of the sector, the merged PricewaterhouseCoopers dominates the insolvency business by a considerable margin, simply by virtue of its size. It manages to cover most of the bases, London handles big-ticket work, with an emphasis on turnarounds and restructurings. It advises several dozen European and US banks in London, which has brought it international work such as Skoda Engineering and steel company VSZ.
On the insolvency side, the firm handled the receivership of Versailles (with Denton Wilde Sapte), the receivership of World Telecom (with Allen & Overy) and ongoing work on Ionica. Outside London, its strongest offices are undoubtedly Leeds and Bristol.
the lawyer 10 july 2000
Source: The Insider’s Guide to Corporate Rescue & Insolvency by New City Media
Firmly targeted at the middle market, most of Baker Tilly’s work is sourced from clearing banks. Most work is receivership based, but its highest-profile job was the bankruptcy of disgraced former Tory MP Jonathan Aitken, with Stephenson Harwood.
Its strengths are firmly in the South East of England, and it recently opened an office in Bristol with the appointment of former Ernst & Young partner Cedric Clapp.
BDO Stoy Hayward
Key clients are clearing banks, but BDO Stoy Hayward is one of the few firms to have targeted asset-based lenders – it now acts for many of the largest factors and invoice discounters in the business, including FMN Financial, Royal Bank Invoice Finance, Alex Lawrie and Deutsche Financial.
There is also a niche in confiscation work at the firm – it has handled a number of Criminal Justice Act receiverships and worked closely with government agencies in freezing and recovering assets.
There is a strong northern bias to the practice, although Begbies Traynor’s London and Southend offices are highly-rated.
Most of its clients are clearing banks, such as Barclays, NatWest and RBS, and it also acts for some asset-based finance houses in the mid-market.
Begbies Traynor has been in expansionist mode recently – it opened in Bristol and Bath last year. Its Preston office has a strong niche in the brewers’ sector, and advises the likes of Scottish & Newcastle, Bass and Courage.
Kroll Buchler Phillips
Kroll Buchler Phillips is slightly different from other firms in the market in that it is an insolvency and restructuring boutique rather than having a tax or audit function. It is a strongly bank-led firm. Restructuring work tends to be in the £5m to £30m exposure range.
On the insolvency side, there has been a slew of appointments in the sports sector (Richmond RFC, Luton Town FC, Oxford United and Swindon Town FC among others). It has solid offices in Birmingham and Manchester, having poached key personnel from big five practices, and has just opened in Leeds.
Levy Gee’s insolvency work has an emphasis on the healthcare, travel agent and restaurant sectors, and has a solid forensic side. One of the highest profile independent firms, it has been at the forefront of the move towards turnaround work. It has impressed a number of lenders with its commitment to the rescue concept.
Pannell Kerr Forster
Bank work is sourced from most of the major clearers, with a strong relationship with RBS in particular. The firm also has a certain specialism in the IT sector.
Pannell Kerr Forster attracts strong comments, both positive and negative, and it has one of the most extensive national networks of any major insolvency practice.
Source: The Insider’s Guide to Corporate Rescue & Insolvency by New City Media