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'Zombie companies' - a new menace to the cleaning industry

Published 19th July, 2010 by Neil Nixon

'Zombie companies' - a new menace to the cleaning industry

There are now 70 companies in the UK cleaning services industry that are ‘Zombie’ businesses. These companies have seen their performance deteriorate to such as extent that they now exist merely to pay off their debts and survive.

David Pattison, author of the new Plimsoll Analysis, explained: “These companies are in a state, posting growing losses and, despite the obvious freeze in the credit markets, increasing their debts. They are Zombie businesses with debts at an average of 51% of turnover - they exist to service their out of control liabilities. Many are also using their suppliers to finance their growing losses, taking twice as long as to pay their bills as the industry average of 38 days.”

Pattison also explained the other major problems these Zombies are facing: “They are falling behind the rest and their productivity is well below the industry average. It’s hard for them to compete as their cost base is just too high. As a result, investment plans have been mothballed meaning their aging assets are further restricting their ability to remain competitive.”

So can these Zombies be saved? Pattison is clear that not all will survive and those that do have a lot of pain ahead: “The first thing they need to do is sort out their immediate finances. They have to convince their banks and suppliers to keep supporting them or not pull the plug. If they can pull that off then the hard work really starts. They urgently need to stem their losses and control costs. The longer it takes them to address these issues, the harder and less likely it is they will ever fix them.”

However, Pattison points to some attractive takeover targets hidden among the Zombies: “Canny investors are seeing an opportunity to pick up a bargain. Some of these companies, stuck in a zombie state because of their balance sheet, have lots of potential for new owners to turn it around. We picked 41 companies that we feel have the most potential.”

And for those unable to attract new buyers Pattison said: “Most have simply had their day and a combination of aging assets, rising losses and increasing debts mean they are unlikely to attract a suitor before the receivers are called. They will be forced back into negotiations with their lenders to buy more time but their future doesn’t look good.”

The new Plimsoll Industry Analysis - Cleaning Services will tell you instantly which companies are prospering in the post recession market place, those taking a big gamble and those in trouble. It gives an instant performance rating on 1000 companies and highlights those ripe for acquisition. Each company is assessed using the Plimsoll Model - a graphical and written analysis that lays bare the facts and gives you instant opinion.

Readers of Cleaning and Maintenance are entitled to a £50 discount of this new special edition of the Plimsoll Industry Analysis - Cleaning Services. Call 01642 626400 for further details and quote reference PR/ SV20.

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