Up for the downstroke

Insolvency accountants, so long out of the frame, are set for a major comeback. Catrin Griffiths asks: can Deloitte & Touche and Ernst & Young edge out PwC and KPMG?


It may sound ghoulish to say so, but insolvency is about to become big business again. Workout specialists and insolvency practitioners, who have languished out of the limelight over the past few years, are beginning to gear up.
But this recession will not necessarily mimic the last. Quite apart from the fact that the vulnerable industry sectors are entirely different – there was no such thing as the new economy a decade ago – the players on the insolvency scene have also changed. To start with, Price Waterhouse and Coopers & Lybrand were then separate entities; the two firms only merged in 1998. For the last four years or so, the prime workouts tend to have gone to PricewaterhouseCoopers (PwC) and KPMG, both of which are highly favoured by the main clearing banks (the main work-givers tend to be Barclays, the Royal Bank of Scotland and HSBC).
But then, at the end of last year, Aidan Birkett and a team of three other partners resigned from PwC to join Deloitte & Touche. It was, frankly, a seismic event, comparable only with the defection of Peter Totty, Gordon Stewart and Nick Segal from Cameron Markby Hewitt (now CMS Cameron McKenna) to Allen & Overy (A&O) in 1989. And indeed, Deloitte's global corporate recovery head Ian McIsaac makes that comparison, adding of the Camerons defectors: “Their timing turned out to be perfect.” Just as Totty, Stewart and Segal arrived at A&O just in time for the last recession, so Birkett and co look to have made the move just in time for this one.
It was a coup for Deloittes, which needed to beef up on the restructuring side. It had faded from view in the mid-1990s and lagged behind PwC, KPMG and Ernst & Young. “We were never at the top table for the big bank workouts,” admits McIsaac. “We'd handle the big liquidations – BCCI and Banco Ambrosiano – but when it came to workouts we had a hole.” Now that the restructuring team is in place, Deloittes offers a much more balanced practice, with Jamie Smith handling financial services and insurance work and the combative Nick Dargan handling the larger receiverships as well as turnarounds.
But it will take an effort to dislodge PwC and KPMG. Both retain teams with tremendous strength in depth and both possess some genuine stars – KPMG has Mike Wheeler and partner Phil Wallace, for example. Wallace is quick to point out that “the big-ticket work is restructuring, not formal insolvency”, but because no insolvency practice will ever speak about confidential workouts except in the most veiled terms, an observer can only assess the formal insolvency side. And on that side, KPMG has handled a clutch of telecoms jobs, such as 360 Networks, led by Chris Laverty, as well as the corporate reorganisation of Swissair, led by Philip Davidson.
Ernst & Young, meanwhile, has possibly the most intriguing offering in the market. It has had an extraordinary year in terms of high-profile insolvencies, bagging among others Scotia, Gearhouse and Finelist. Although the likes of Alan Bloom and Kevin Hewitt are popular with bankers, it too lagged behind PwC and KPMG on workout market share. It would appear that Ernst & Young has extended outside its traditional domestic lender client base. “The clearers aren't as significant as they used to be,” admits Bloom. “Some of [our lender clients] are clearers, some aren't.”
But what makes Ernst & Young particu-larly interesting is the way it abandoned the service line approach to the recovery market. Back then, it was perceived to have been struggling when it downsized partners and offices two years ago following its integration with corporate finance, but at the time of writing the firm's profile has improved immeasurably. “The rationale was twofold,” says Bloom of the integration of his group with corporate finance. “We're doing more corporate work. Not at the expense of creditor work, mind, but there were more synergies with our strategic finance and M&A groups. When we look at the solutions on Scotia and Finelist, they were corporate finance solutions, so we think that's an edge.”
Hovering just below the top four are Arthur Andersen and Grant Thornton. Grant Thornton in particular has put in a strong performance over the past couple of years; with 30 partners it can challenge the leading quartet on the domestic scene at least (KPMG has 32 and Ernst & Young has 20), although it has nowhere near the international reach of the likes of KPMG. But Grant Thornton's formal practice is motoring – it has been appointed to 94 receiverships this year and is top of the receivership list, according to website insolvency.co.uk, and has a growing client base in asset-based lenders.
While it is clear that the major insolvency practices are going to be busy over the next year, the real battleground may not be for clients – after all, it looks like there will be plenty of them around. Instead, recruitment will be the major issue. “Insolvency has been pretty unsexy over the past few years,” says Grant Thornton partner Mike Jervis. “New recruits tended to choose corporate finance, so there's less talent to go round and an ageing population of insolvency practitioners.” In other words, it comes down, as always, to the people.
Baker Tilly: strong mid-market player, particularly in the South East, and with a good line in high-profile bankruptcies (Jonathan Aitken and Neil Hamilton, to name but two).
Begbies Traynor: has a fast-growing market share through an increasingly impressive regional network, although it is still small in London. Good links with asset-based lenders such as GMAC.
Kroll Buchler Phillips: the one insolvency boutique able to handle big-ticket jobs, with a strong reputation for quality.
Levy Gee: recognised early on the importance of the concept of turnaround; astutely marketed itself as a turnaround specialist in the middle market, while at the same time handling buckets of straightforward insolvency work.
Menzies: a new entrant onto the insolvency scene, and not able to challenge the larger, more established players, but as a start-up things are looking good; hired Kroll Buchlers' Andy Stoneman, among others. Already targeting asset-based lenders with some success.
Robson Rhodes: lost Keith Hines in Leeds to Ernst & Young, but perceived to be bouncing back in London after a tough couple of years, where it lost a number of partners to Grant Thornton and Baker Tilly. Despite a relative lack of resources, it has maintained a strong Barclays connection and is just about to hire Mike Oldham from Pannell Kerr Forster; Oldham has longstanding links with the Royal Bank of Scotland.

Up for a good recession?

Baker Tilly: strong mid-market player, particularly in the South East, and with a good line in high-profile bankruptcies (Jonathan Aitken and Neil Hamilton, to name but two).
Begbies Traynor: has a fast-growing market share through an increasingly impressive regional network, although it is still small in London. Good links with asset-based lenders such as GMAC.
Kroll Buchler Phillips: the one insolvency boutique able to handle big-ticket jobs, with a strong reputation for quality.
Levy Gee: recognised early on the importance of the concept of turnaround; astutely marketed itself as a turnaround specialist in the middle market, while at the same time handling buckets of straightforward insolvency work.
Menzies: a new entrant onto the insolvency scene, and not able to challenge the larger, more established players, but as a start-up things are looking good; hired Kroll Buchlers' Andy Stoneman, among others. Already targeting asset-based lenders with some success.
Robson Rhodes: lost Keith Hines in Leeds to Ernst & Young, but perceived to be bouncing back in London after a tough couple of years, where it lost a number of partners to Grant Thornton and Baker Tilly. Despite a relative lack of resources, it has maintained a strong Barclays connection and is just about to hire Mike Oldham from Pannell Kerr Forster; Oldham has longstanding links with the Royal Bank of Scotland.


The next generation

Paul Appleton, David Rubin & Partners
Louise Brittain, Baker Tilly
Mark Fry, Begbies Traynor
Mike Jervis, Grant Thornton
Chris Laverty, KPMG
Lee Manning, Kroll Buchler Phillips
Simon Michaels, BDO Stoy Hayward
Daniel Smith, Robson Rhodes
Andrew Stoneman, Menzies
Andrew Wollaston, Ernst & Young