During the first half of 2010 almost one in ten (9.4%) of UK mergers and acquisitions involved distressed businesses. Of the 1491 deals completed in the UK, 141 involved companies acquired out of administration or other formal insolvency procedure, according to research by Experian Corpfin on behalf of insolvency trade body R3. The total value of all distressed deals in the first six months of the year amounted to close to £519m (£518.505m).

Steven Law, R3 President, said: “Insolvent businesses continue to feature in a significant proportion of deals within the UK. The number of distressed deals has more than doubled since 2008 when one in twenty five deals involved an insolvent business. The recession may have officially ended but distressed businesses and assets are continuing to come onto the market.

“For buyers with access to funding, there is the opportunity to extend their portfolio while values remain subdued. For the businesses themselves, an acquisition represents a fresh start and a chance to secure the jobs of the workforce.

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The latest Insolvency Index from Experian®, the global information services company, has revealed a year-on-year decline in business insolvencies during June. The overall financial strength score of UK businesses also improved, from 80.83 in June 2009 to 80.66 in June this year.

1,771 UK businesses failed during June 2010, 13.4 per cent fewer than in June 2009 when 2,044 firms became insolvent. As a result, the year-on-year insolvency rate fell from 0.10 per cent to 0.09 per cent in June.

At 0.14 per cent, the North East had the highest insolvency rate of the regions in June, with Yorkshire (0.12 per cent) close behind. In contrast, at the opposite end of the country businesses in the South West saw a UK low of 0.07 per cent, while Greater London had an insolvency rate of 0.08 per cent.

Rolf Hickman, Managing Director of pH Group, an Experian company, said: “June’s data indicates that the UK’s business community as a whole is stabilising, however it also points to the existence of a north versus south divide. Businesses in the north of England seem to be faring slightly worse than their southern counterparts across all industry sectors.”

“Although the data hints at some improvements, individual organisations are impacted in different ways. It is vital for businesses to understand the circumstances of those they are doing business with and the risks they could expose them to.”

Other key highlights include:

• Scotland was the only region of the UK to see an increase in the insolvency rate, up to 0.08 per cent from 0.06 per cent in June 2009
• As well as being the region with the lowest insolvency rate, the South West also held the highest financial strength score (82.50)
• Smaller companies with 11-25 employees saw the greatest year-on-year reduction in the insolvency rate (from 0.29 per cent in June 2009 to 0.20 per cent).
• The largest businesses with 501 plus employees suffered the most since last year, seeing the insolvency rate double from 0.07 per cent in June 2009 to 0.14 per cent.
• The smallest businesses (with 1 to 2 employees) were the only group to see an improvement in their financial strength scores – from 81.33 in June 2009 to 81.95 in June 2010.
• The financial strength of businesses in the transport industry rose from 75.98 in June 2009 to 78.20 – the biggest improvement compared to other sectors. This sector also saw its insolvency rate drop from 0.12 per cent to 0.07 per cent over the year.
• Businesses in the oil industry held the highest financial strength score during June (85.54)

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Government must extend National Insurance holiday to all UK businesses as research shows two-thirds of firms in the South East most likely to be under capacity.

Business confidence has worsened over the second quarter of 2010 suggesting that the recovery is still fragile and more should be done to support private sector growth, according to the FSB ‘Voice of Small Business Index’, published today.

In a survey of over 1,200 members of the Federation of Small Businesses (FSB), only a net four per cent of respondents believe that business prospects will improve in the third quarter of the year, down from 16 per cent in March.

The survey also suggests that almost 67 per cent of small firms are operating below capacity, with those in the manufacturing sector faring much better than service sector firms.

This further highlights how the UK economy is still some way from a full-speed recovery, with 64 per cent of firms in the South East likely to be working below capacity – more than anywhere else in the country.

With Government proposals to exempt the South East, London and the East of England from the National Insurance holiday for new businesses, announced in the Emergency Budget, the FSB is concerned firms in the region will not start-up and that existing businesses will not have the support they need to grow and take on more staff.

Key findings from the quarterly report show:

* Small business confidence has faltered each month since March with fewer small firms believing that business prospects will improve, down from 16 per cent to four per cent.
* The majority of small businesses are still operating below capacity, although the proportion of businesses has fallen slightly from 70.5 per cent to 66.6 per cent since the last report.
* Firms operating below capacity are more prevalent in the service sector than manufacturing and are more likely to be based in the South East.
* Revenue growth remains weak and is not expected to improve in the next quarter.

John Walker, National Chairman of the Federation of Small Businesses, said:

“The consensus view from small firms is that the recovery is far from secure and there are significant risks to business growth in the future. With this is mind, as well as the fact that almost 70 per cent of businesses report working under capacity, we encourage the Government to support small businesses to grow and expand.

“With small firms in the South East most likely to be working below capacity, this shows how wrong the Government is to not include this vital region, as well as the East and London, in its proposals for a National Insurance holiday for start-up businesses. While we support the policy we believe that it should be extended to be UK-wide and be available for existing businesses too.

“With 600,000 public sector jobs expected to be lost, stimulating private sector job creation, especially in small firms, will be vital to rebalancing the economy.”

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Total administrations in the UK manufacturing sector have dropped 46% for the first half of the year compared with 2009, according to data compiled by business advisory firm Deloitte. This is a far more positive outlook than six months ago, when Deloitte’s annual administration figures for 2009 indicated that manufacturing was the second hardest hit sector of the economy, representing 17% of total administrations for the year.

Ross James, manufacturing partner at Deloitte, commented:

“The manufacturing sector is certainly in a better position than it was a year ago, however demand has not increased to the level required to give the sector the boost it needs. While we are seeing order books pick up, businesses have tightened up operationally and are running with a lower level of working capital, so the significant ‘restocking effect’ that was hoped for has not happened. Corporate investment in capital expenditure also remains tight. While there are certainly a number of issues at play affecting UK manufacturing, end demand and business investment are the primary drivers and until there is a significant and sustainable increase in demand, the outlook for the sector will continue to be uncertain.”

Administration data from the first half of the year shows that the retail sector enjoyed the highest rate of decline with administrations down 57% year on year, followed by the manufacturing sector (46%) and property and construction (43%)

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The growth of fraud in the UK continues unabated according to BDO LLP’s six monthly update on reported fraud. For the first six months of this year fraud losses rocketed to GBP1.06bn and eclipsed previous half-year figures, and were almost the same as for the whole of 2008.

This is the first time fraud levels have soared above the GBPbillion barrier during the interim period in the seven years BDO has been conducting its survey. The average value of a single fraud has increased to almost GBP6m, from GBP5m last year.

It shows that fraud is on the increase and BDO fully expects this to be another bumper year. In particular, BDO expects more enforcement action by regulators in the financial services arena with enforcement action for insider dealing also becoming more prevalent.

Simon Bevan, Head of the Fraud Services Unit at BDO, says: “In the past we have seen a focus on procurement type frauds – that is public and private sector organizations paying too much for goods and services. However we are now seeing more ‘revenue dilution fraud’ – where management commits fraud by either setting up ‘companies within companies’ or diverting lucrative contracts away from the company to third party accomplices. Linked to this is an increase in insider dealing.”

Bevan predicts that competition between regulators to ‘act tough’.

“We have a combination of political pressure and the understandable desire, in a downturn, for the public sector and corporates to be seen to have a zero tolerance policy.”

From these interim results, BDO predicts that the average fraud will top GBP7m by the end of 2010.

Sectors and regions most at risk:

• The finance and insurance sector remains a dominant fraud risk with 49% of all fraud in this sector
• Mortgage fraud accounts for a fifth of all reported fraud and 36% of fraud in the finance sector

• Third party customers and suppliers are responsible for 17% of all reported fraud on businesses whilst internally management cooking the books have also caused 16% of reported fraud London and the South East continue to be the hotbed of fraud activity with 71% of fraud but Wales has also experienced 15% of fraud in this interim period compared to only 2% last year

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