In a shocking turn of events, ISG Construction, one of the UK’s largest construction firms, has officially entered administration after months of financial uncertainty and failed attempts to secure a sale.
Six subsidiaries of ISG officially entered administration on Thursday, including ISG Construction, ISG Engineering Services, ISG Retail, ISG UK Retail, ISG Jackson and ISG Central Services.
Administrators are yet to be appointed.
The company, which boasted a turnover of £2.2 billion in 2022, is now the latest victim of the industry’s precarious environment, with its collapse marking the most significant corporate failure in the sector since the downfall of Carillion six years ago.
ISG’s failed sale and the collapse of negotiations
In an email to staff, Zoe Price, ISG’s CEO confirmed the collapse, revealing that months of negotiations with a potential buyer, a South African businessman, had fallen through. Price said,
While there has been speculation for some weeks now, I can confirm that it was not possible to conclude a sale, as the purchaser could not satisfy the funding needed to recapitalize the business.
The company, which was owned by the US private equity firm Cathexis since 2016, had sought a £250 million capital injection to stay afloat.
Price also highlighted that efforts to refinance the company through its current owner, a Texan billionaire named William Harrison, had also failed.
As the news broke, ISG’s offices and project sites were ordered to shut, with employees and subcontractors being told to stay away until further notice.
Price acknowledged the shock to staff, writing, “Some of you may have seen reports in the media that ISG has filed for administration. With sadness, I can confirm this is factually correct.”
Legacy projects and the downfall of a giant
ISG’s financial troubles are rooted in several large loss-making contracts secured between 2018 and 2020.
These projects, particularly in the residential, logistics, and data centre sectors, drained the company’s liquidity and pushed it into crisis.
Price candidly admitted in the email,
Trading out these projects has had a significant effect on our liquidity. So even though we have been profitable this year, our legacy has led us to a point where we have been unable to continue trading.
ISG had been involved in numerous high-profile projects, including the redevelopment of Lord’s Cricket Ground, the Olympic Velodrome, and the fit-out of Google’s headquarters at King’s Cross.
However, these past successes were not enough to counterbalance the heavy losses from problematic contracts.
ISG’s fall from grace is particularly striking given its long history of growth and success.
Founded in 1989 as Stanhope Interiors, the company initially focused on fit-out work for corporate offices.
Over the years, ISG expanded into new sectors and geographies, winning contracts across Europe, Asia, and Africa.
In 2016, Cathexis took the firm private in an £85 million deal, signaling a new chapter for the business.
It was in 2022, that ISG’s fortunes took a turn for the worse when it began to report a decline in profits.
The company’s pre-tax profit for that year fell by 38%, while turnover also dipped slightly.
These financial challenges were compounded by the failure of key projects like Britishvolt’s gigafactory and the pause on the Sunset Studios project, both of which left gaps in ISG’s order book.
Source: ISG Annual Report, 2022
Promises unfulfilled: The email from ISG’s chairman
The news of ISG’s collapse comes just over two months after the company’s chairman, Matt Roche, assured staff and suppliers that a deal to sell the business was imminent.
In an internal communication dated July 5th, Roche wrote, “We are very near to closing the sale of ISG.”
However, the promise of a rescue deal fell flat as negotiations with the South African buyer stalled, leaving ISG with no choice but to file for administration.
This failure has raised questions about the transparency of ISG’s leadership and the timing of the company’s internal communications.
With the sale now officially off the table, Price stated that the administrators, likely to be EY, will take control of the company’s assets and oversee the winding down of its operations.
Fallout and impact on the supply chain
The collapse of ISG is expected to have far-reaching consequences for the UK construction industry, with subcontractors and suppliers likely to be the hardest hit.
One firm cited by Building, estimated that businesses in ISG’s supply chain could be owed as much as £150 million.
This situation echoes the fallout from Carillion’s collapse in 2018, which also left many companies in financial distress.
In the report by Building, an industry insider commented on the broader implications of ISG’s failure, stating,
I think this has the potential to be worse than Carillion. It will badly damage the supply chain, and it’s also as much about the ripple effect on the rest of us in terms of banking support, bonding capacities, and credit insurance.
As speculation grew about ISG’s fate, there were reports of subcontractors removing equipment from sites, and some staff members took to LinkedIn to announce that they were seeking new employment.
The ripple effect of this collapse is expected to strain an already weakened sector, as firms scramble to secure new contracts and stabilize their operations.
Projects left in limbo
Several high-profile projects, including the Google headquarters fit-out and the £120 million deal to fit out Linklaters’ offices in London, are now in jeopardy following ISG’s collapse.
The company was also responsible for numerous large-scale developments, such as the expansion of Lord’s Cricket Ground and BP’s headquarters.
These projects will now face delays or be reassigned to other contractors, further complicating the construction landscape in the UK.
Rivals of ISG are already positioning themselves to take on the firm’s unfinished contracts, with one saying, “I think everyone has to do their bit. This is really bad.”
Future remains uncertain for employees and subcontractors
The collapse of ISG is a sobering reminder of the fragility of the UK construction sector.
As the industry grapples with rising costs, supply chain disruptions, and economic uncertainty, the downfall of such a major player sends shockwaves through the market.
For the 3,000 employees affected by the collapse, and the countless subcontractors left out of pocket, the future remains uncertain.
While administrators work to sort through ISG’s assets and debts, attention will now turn to how the industry can prevent a repeat of this disaster.
As the dust settles, industry leaders will likely reflect on the lessons learned from ISG’s collapse.
The hope is that the wider construction community can rally to support those affected and, ultimately, build a more resilient future for the sector.
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