KPMG restructuring spin-off Interpath falls to £10mn loss

Interpath Advisory, KPMG’s former UK restructuring division, has fallen to its second consecutive annual loss since breaking away from the Big Four firm, despite a rise in companies in distress.

Pre-tax losses at the private equity-backed business widened to £10.6mn during the 12 months to March, compared with a £10.2mn loss a year earlier, following a rise in staff and financing costs. Revenues rose by more than a fifth to £142.6mn during the period.

Blair Nimmo, chief executive of Interpath, told the Financial Times that the restructuring market has “not turned out to be quite as hot as people thought it would be” despite rising interest rates squeezing companies’ finances.

KPMG sold the insolvency and restructuring business to private equity group HIG Capital in 2021. The deal was one of several recent examples of private equity firms investing in the professional services industry.

In 2021, Deloitte sold its restructuring business to Teneo, which is backed by buyout group CVC. Earlier this year, Deloitte also offloaded its UK pensions advisory division to Isio, the private equity-backed business spun out of KPMG in 2020.

While spinning out divisions into separate entities frees them from conflict of interest restrictions within the Big Four audit and consulting firms, some partners are sceptical of the benefits when weighed against the loss of internal referrals of work.

Revenues at Interpath’s restructuring business rose 2.6 per cent to £115.6mn during the year to March. The modest growth came despite a significant jump in businesses in distress, with company insolvencies in England and Wales hitting a 13-year high in 2022 amid soaring interest rates.

Nimmo, an ex-KPMG veteran, said growth in restructuring was “disappointing in the context of the market, which we thought we might be in”.

He added: “In the restructuring market there have been so many false dawns. We are getting progressively busier . . . but do I see some sort of avalanche [of activity]? No, I don’t.”

Headcount at Interpath has risen from 550 since the company separated from KPMG to about 740 today, pushing up staff costs by 25 per cent to £89mn during its latest financial year. The highest paid director received £1.02mn for the year to March, according to the accounts.

Interpath expanded internationally during the period, opening three offices in Ireland and acquiring Kalo Caribbean, which operates in the British Virgin Islands and the Cayman Islands.

Nimmo said Interpath was looking at opportunities to expand into continental Europe and the US, which could include further acquisitions.

Financing costs also rose 44 per cent to £18.8mn, with Nimmo saying “investment has required some additional facilities to be used”. He added: “If you’re growing at the pace that we are, then the P&L does manifest itself in cash requirements.”

Sales at Interpath’s advisory business climbed to £26.9mn, up from £2.8mn a year earlier.