ISG’s chief executive has confirmed that the company is set to go into administration and told staff that offices will be closed from today while sites will also be shut.
The collapse is the biggest corporate construction failure since Carillion subsided six years ago and is set to see an administrator, believed to be EY, appointed shortly.
In its last set of results, ISG posted a turnover of £2.2bn in 2022 and employed around 3,000 people.
Questions will now be asked about why company chairman Matt Roche wrote to staff and suppliers on 5 July promising them that a deal to sell the business would happen “within days”.
But in an email sent to employees last night, and seen by Building, Zoe Price said plans to sell the business to a would-be buyer, believed to be a South African businessman who made his fortune from healthcare and vitamin products, had hit the buffers after being unable to “satisfy the funding needed to recapitalise the business”.
The news in July about the would-be sale coincided with rumours that ISG needed a significant cash injection at the beginning of that month to keep going.
Building understands that the amount of money the firm needed pumping into it was in fact closer to £250m rather than the widely rumoured £100m.
In her email last night, Price added that a refinancing deal by the firm’s current owner, a US private equity business called Cathexis, run by a Texan billionaire called William Harrison, had come to nothing as well.
She wrote: “We also looked at selling individual business units to third parties but, again, we have not been able to conclude these negotiations in the timescale. This has left us no option but to file for administration.”
Price told staff not to turn up for work today as offices will be closed. “You will be notified when you can come and collect your things. Some individuals will be admitted should there be a requirement from the administrators for them to do so.”
She said sites will not be open either and added: “We will be standing subcontractors down and there will be a controlled process for them to recover plant and tools once the administrators are formally in place,” she added. “They will be notified when this is possible.”
She told staff that they would be paid as normal on Monday and also apologised to them for finding out about the administration through the media.
“Some of you may have seen reports in the media that ISG has filed for administration here in the UK. With sadness, I can confirm that this is factually correct.
“This was not the way I wanted you to find out and the news should not have leaked in this way.”
Administration notices for six firms were filed on a publicly accessible website late yesterday afternoon. Price told staff: “We had a managed plan to tell you what was happening on Monday once we had more clarity but news has leaked at the filing stage – and that is why I am writing to you tonight.”
Her message to staff came 11 weeks after Roche, who is also the chief operating officer of Cathexis, told employees and suppliers that the US firm was “very near to closing the sale of ISG”.
In her email, Price told staff: “You are owed an explanation of what has been happening over recent months.
“I know there has been speculation and rumour for some time, and we have tried everything to save ISG from this situation. And I know there must have felt a lack of communication. The truth is that every communication we have done has been leaked to the press by a very small minority, which has not been helpful as we have worked to rescue ISG. And that is why we have been very cautious in the past couple of months.”
She said: “I want you to know there have been significant efforts made to secure a sale of the group over many months.
“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 recapitalise the business. Cathexis also looked at refinancing the company in recent months but has been unable to execute.”
She also pinned the blame for the firm’s demise on a series of problem jobs it had signed several years ago.
“By way of background, the group’s trading and cash performance has been impacted by legacy issues relating to the large loss-making contracts secured in between 2018 and 2020 (primarily in the residential, logistics & distribution sectors as well as some data centre projects).
“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.”
And she finished: “Once again, I am so sorry to have to share this news. Thank you for all your support as an employee. The next step will be the appointment of the administrator and we will be in touch soon about what this means and how you can get the information you will need looking ahead.”
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Rumours that ISG was on the brink of collapse had grown in the past couple of weeks and on Tuesday, logistics firm Alandale, filed a winding up notice against ISG Engineering – although yesterday an ISG spokesperson said this amount, understood to be for £300,000, had been settled.
But as the week wore on, speculation that it was about to sink grew and yesterday the atmosphere about its chances of survival became febrile with reports that subcontractors were taking equipment off sites and staff taking to LinkedIn to say they were looking for new jobs.
In the past few weeks, Building has been told the firm has been ditched from several jobs, including three data centre schemes, including one in Spain, while it is understood to have been removed from a government framework believed to be for HMRC.
Attention will now turn to the impact on trade suppliers with one firm estimating that subcontractors will be hit for at least £150m.
One construction boss said: “I think this has the potential to be worse than Carillion. Carillion had a lot of overseas work and it did a lot of work in the UK in joint venture.”
And another firm added: “It will badly damage the supply chain who will be owed millions but it’s also as much about the ripple effect on the rest of us in terms of banking support, bonding capacities, credit insurance market, PI cover costs and so on.”
Rivals have already told Building they will be looking to pick up staff and contracts in the coming weeks. “I think everyone has to do their bit,” said one. “This is really bad.”
Staff have taken to social media since the news broke last night. One employee said: “A dark day for some great people”, adding thanks for other posts offering help from other employers: “Your support and that of others right now is more reassuring than you realise.”
Price’s email marks the culmination of months of speculation about the state of the firm which began last autumn when the company, led by the then chief executive Matt Blowers, was forced to put out a statement denying that it had run into financial problems.
It dismissed rumours that swept the industry as “unsubstantiated, wholly inaccurate and false” and claimed “we continue to be a debt free and profitable business”.
But rumours about its financial state persisted and in February it was plunged into a fresh crisis when the firm announced that both finance chief Karen Booth, who was later brought in to help out with the would-be purchase, and Blowers were leaving.
Blowers was replaced by Price, previously the firm’s chief operating officer, who at the time issued a statement thanking Blowers and issuing a call to arms for industry reform. “We cannot expect to attract the talent and creativity our sector needs to thrive, through the continuation of behaviours and approaches that deliver the status quo,” she said.
Among the jobs now left wondering who will complete them are the Google headquarters scheme at King’s Cross – worth around £150m – a £120m deal to fit out the offices of law firm Linklaters at 20 Ropemaker and a £50m deal to fit out the offices of BP’s headquarters.
Schemes it has worked on include the expansion of Lord’s cricket ground, the 2012 Olympic velodrome and the BBC’s new broadcasting HQ in Cardiff.
The firm was taken private by Cathexis in 2016 after it paid £85m for it. ISG was set up as Stanhope Interiors by David King in 1989 and listing in the late 1990s.
ISG has been contacted for comment.