A Printweek poll that asked readers if they support industry pre-packs returned a resounding 67% result for ‘Never, creditors are always stung’.
23% said they support pre-packs but only if the buyer is not connected, while the remaining 10% said they do support pre-packs, because ‘they make sense and preserve jobs’.
Pre-pack insolvencies have been used more and more over the past few years. According to Steve Mepham, owner and director at NPD & Co, pre-packs were up 23% in 2023 on 2022.
Print has had a difficult time of late, with several high profile businesses failing over the last six months. Many of these, including Hamilton Adhesive Labels, H Charlesworth & Co Ltd – which traded as Charlesworth Press, and Celloglas, were subsequently snapped up via pre-pack deals.
The insolvency profession is trying to change the negative perception that has existed around pre-packs.
Julie Palmer, partner at Begbies Traynor, told Printweek that pre-pack sales are often “the best way to preserve maximum value for stakeholders, preserve jobs and save businesses”.
“They are subject to strict control and transparency but often, not always, it will be the connected management teams who will offer the highest price for the business.”
While print has seen a lot of failures recently, Palmer said the trend is not print specific.
“Print tends to be the first sector to be hit by recessionary headwinds due to reduced marketing and advertising spend and the last to emerge.
“We are, however, seeing distress across construction and related industries, as well as consumer facing businesses.”
To survive a downturn she suggests that struggling companies should “understand margins (not being busy fools), control overheads tightly, and put stringent credit control in place”.
“It’s also important to understand your customers – both their requirements and any risk they pose for non-payment,” she added.
Ian Carrotte, owner and CEO of print industry credit check agency ICSM, told Printweek there were several reasons contributing to the recent number of industry failures.
“There is a continued hangover from Covid and its effects across the nation’s businesses. The loans taken out to help firms survive have simply added debt – and debt is the downfall of many firms who find they cannot service it in the long run.
“Covid also altered consumer purchasing patterns, plus there is still a cost-of-living crisis trimming household budgets and there are fears of a tough autumn budget with further hiking taxes.
“Summer is a quiet time traditionally with staff on vacation due to the school holidays and spending by firms and the public is lower, meaning less orders for printers.”
On pre-packs, he added: “If there is one piece of reform that is needed in the insolvency industry it is to end the abuse of pre-packs. The idea was and is to save jobs – a noble ambition.
“In reality there are too many stitch-ups – cosy relationships between insolvency practitioners and the directors of ailing firms or the purchasers which leaves unsecured creditors unpaid.
“The new business secretary Jonathan Reynolds is bringing in greater transparency over late payment with new legislation. We would like to see the same transparency and enforcement where rules are broken at the same time.”
Some of the companies that have recently gone down had made an earlier acquisition of their own that hadn’t worked out in the way that had been hoped, and – in some cases – had contributed to their own troubles.
NPD & Co’s Mepham told Printweek he had seen this happen many times over the years.
“You only have to look back at old Printweek news stories to see how many have started to expand too rapidly, business is buoyant, then suddenly a large contract is cancelled, or a piece of equipment takes too long to set up/install so ongoing costs, the machine remains idle.
“Then you include the Covid loans, people have used them to either expand further or keep the company buoyant, some in diminishing/shrinking markets and sectors. That’s only sustainable for a short time before it runs out. Then the inevitable consequences have to be faced.
“Again, it has happened countless times over the years where companies expand and grow quickly or invest in huge pieces of equipment to remain competitive and it only takes one factor to set the ball rolling towards the inevitable.
“But what do you do? Keep your business small and niche to survive and manage costs as best as you can, and plan or prepare for that emergency that hopefully won’t happen but be prepared. You’re never too big to go down, sadly.”
Mepham said he felt it would be difficult for the insolvency profession to make pre-packs popular in the printing industry, particularly with the way that print suppliers are often hit by these deals as unsecured creditors.
“The print sector will continue to view them negatively because they continue to happen. Effectively they are, for want of a better word, the new ‘phoenix’. A company is valued at an attractive price to entice potential interested parties, despite that value being well below its actual worth.
“It’s then sold on to someone who had a vested interest in the business before, having been advertised and they were the only party who expressed an interest.
“Insolvency companies have a huge power of discretion at their disposal. You can dress it up however you want, and change the name slightly, but if it’s at the same premises, same kit, a familiar name at the helm and some of the staff retained, then rivals and suppliers alike are all going to take a dim view of its re-emergence.
“You won't remove that until you have a system in place where authorities or government or both, have the power and the money to investigate the demise of these companies and go further into the wherefores and the whys as to what exactly went on, and if there’s anything to be taken further.”
