Last year saw a record number of business failures, eclipsing the previous high at the peak of the global financial crisis in 2009. The first two months of 2024 saw this unwanted trend continue, with monthly insolvency numbers beating the equivalent period in 2023.
Disappearing Administrations and the impact on business rescues
Nevertheless, amid the rising Creditors’ Voluntary Liquidations, where directors of struggling companies called time on their operations, one curious feature was a reduction in the number of Administration appointments. This is the route through which many formal business rescues go when protection from creditor enforcement action is needed, but there were just 1,633 Administrations in 2023 according to the Insolvency Service, representing only 6% of formal insolvencies. This compares to 4,167 (23%) in 2009 and 1,918 (10%) pre-pandemic in 2019.
Positive 2024 Administration trend
There has finally been a bounce back for Administrations this year. They were up 45% in January 2024 compared to January 2023 and 55% in February 2024 compared to February 2023. Better still, February 2024 finally saw a higher outcome than the equivalent month pre-pandemic, up by 12%.
Merger & Acquisition outlook for 2024
In the wider M&A market, hopes are rising for a recovery in the volume and value of deals in the UK this year. A survey published in January by investment bank Deutsche Numis shows that 88% of UK corporates see a positive outlook for M&A this year.
This follows a poor outcome in 2023, when the value of UK deals fell sharply to $199bn largely because of deteriorating business confidence and tough financing conditions. That was a drop of 25% from 2022’s tally, and down more than 60% from 2021’s post-pandemic rush, based on data compiled by Bloomberg.
Why might business rescues be rising in 2024?
The economy
The positive GDP and inflation statistics for February gave some reason for cautious optimism that the worst might be over for the economy. This welcome boost is unlikely to have impacted business confidence yet, but what will have helped encourage a more positive attitude to saving embattled businesses is the talk of lower interest rates later this year. Seeing pay increases exceed inflation may also have raised hopes of greater spending power for consumers.
Private equity liquidity and flexibility
Private equity houses often play a key role in high-profile, higher-value business rescues. PE managers are estimated to be sitting on record levels of ‘dry powder’ uninvested client funds, currently estimated to be around $4tn worldwide. They have also begun to be more flexible by switching to doing ‘deal-by-deal’ transactions via capital raised for specific investments rather than using funding taken from general, longer-term funds.
Easier labour market conditions
Although data sourcing issues have thrown doubt on the reliability of employment figures currently being published by the Office for National Statistics, the consensus among business leaders, economists and pundits is that the worst of the squeeze on labour resources and pay rates may finally have passed.
At the same time, the headlong development of artificial intelligence is promising to transform the business models for some labour-intensive sectors such as manufacturing, restoring the viability of some businesses and making them candidates for a rescue rather than the oblivion of Liquidation.
The re-alignment of sellers’ and buyers’ price expectations
There are signs of a move away from the pricing “mismatch” that plagued many M&A deals and scuppered the prospect of Administration rescues during 2023. As buyers begin to have a clearer economic outlook and targets have started to adjust their pricing agenda, there should be a more bridgeable gap between the two sides of transactions regarding valuation.
The vital importance of business rescue
The reduction in business rescue activity has been deeply unfortunate for the low growth, no growth economic conditions in the UK over the last few years and particularly in 2023. A fundamental problem stretching back decades has been low levels of business investment and poor productivity. We examine this in detail in this blog.
Whether it is through a solvent M& A deal or an Administration sale, business rescue frees up previously unproductive assets and delivers them into better-capitalised and more ambitious new or re-invigorated ownership. It saves jobs, preserves communities and supports vital supply chains. Most of all, a thriving business rescue market can make a major contribution to solving the UK’s apparently intractable productivity challenges.
How we can help
We have extensive experience assisting business owners and directors, and we will always work with you to find the best solution for you and your business.
One of our Partners would be more than happy to have a non-obligatory confidential chat with you. We can be contacted at rescue@opusllp.com or call us on 020 3326 6454 and we will arrange for a call with one of our Partners.