ISG fails: How is this possible after Carillion?

Paul Cossell, a building industry grandee, was optimistic two years ago in the glistening, glass-clad ISG offices in London’s fast-rising Aldgate District. He said, “I believe our industry is becoming sexier.” “We can save the world.” He had every reason to be confident. He had good reason to be confident. The judges noted that he won so many contracts in 2018-19, ISG jumped from 17th place to third position in terms of the turnover generated by its building contracts.

Zoe Price (ISG’s newly promoted chief executive) confirmed to staff via email on Friday that the company had been placed into administration. How has changed over the years. Zoe Price, ISG’s newly promoted chief executive – another long-serving executive in the company – emailed 2,400 of her employees on Friday: “Some may have heard in the media reports that ISG had filed for administration in the UK. “I can confirm this factually with sadness.”

The collapse sent shockwaves throughout the construction industry. ISG, which made all but 200 of its 2,400 employees redundant immediately, is the largest insolvency since Carillion’s collapse in 2018.

It was also a large government contractor, and it was involved in many public sector projects including schools and prisons, totaling £1.2 billion. ISG has worked with blue-chip companies from KPMG and Google to name a few. ISG worked on London landmarks Kew Gardens, and Lords Cricket Ground.

Contractors are scrambling to figure out what to do next as a number of projects are in turmoil. The industry, which had promised to clean itself up after the Carillion Scandal, is now being asked some tough questions. ISG has worked at Lord’s Cricket Ground, below, and Kew Gardens above. Clients were angry then, as they are now: How did a company, which not so long ago boasted a £2.2 billion annual revenue and a healthy profits, become a ruin?

ISG was formed in the 1980s as a division within the developer Stanhope to improve the quality and efficiency of its fit-outs. This was done while the builder was building Broadgate in London’s office district, next to Liverpool Street Station.

Sir Stuart Lipton claimed that ISG made a big mistake by diversifying from building interiors.

David King was the leader of a management-led buyout in 1989. In 1998, the company went public on AIM under the name Interior Services Group. The 2012 Olympics sparked a rush of construction work, and the company expanded into other areas. ISG constructed the Olympic Velodrome where Sir Chris Hoy, Dame Laura Kenny, and other athletes enjoyed a summer of sports.

Diversifying away from interiors, according to Stanhope’s founder Sir Stuart Lipton was a mistake. He said that the company started as a focused business, but then expanded into other areas.

ISG was one of the largest government contractors and was involved in many public sector projects

The margins in heavy construction are extremely tight. Any company that has entered into fixed price contracts will end up losing money.

ISG’s nearly two decade stint at the London Stock Exchange ended in 2016, when the company failed to resist a hostile takeover of £85 million by US investment group Cathexis.

Cathexis, the family investment firm of William Harrison is a 38 year old Texan billionaire. He is the great grandson of a Texas land baron and oilman named Dan Harrison. William Harrison has been in charge of the family ever since his father died, aged 54 and attacked by bees, while driving a tractor.

William Harrison, a controversial figure from the US, recently built a 20 mile barbed-wire fence around an 88.000-acre Colorado ranch he purchased for $105m in 2017, in dispute over land. Harrison claimed the fence was constructed to combat poachers.

David Lawther, ISG’s former chief executive, who had opposed Cathexis’s takeover of the company, was replaced by Cossell within a few weeks. Cossell is a proud cyclist, ISG’s head of fit-out services and engineering, and he has been with the company for over 30 years.

After the takeover those at the top received handsome rewards. The company’s highest-paid director (believed to be Cossell) saw his pay jump from £900,000.00 in 2016 to £3,000,000.00 the following year. Executive bonuses of several million pounds were awarded despite ISG’s and many competitors’ painfully low profit margins. ISG made a profit of £9 million before tax on a turnover of £1.7 billion in the first year following its privatization.

ISG made a clerical mistake as Carillion collapsed in 2018. According to the company accounts, the company paid out a £25million dividend to its shareholder in the following year only to have to refund it when the directors realized that the distribution was illegal. Harrison claimed that the dividend was actually a repayment of Cathexis’ loan to the company. He also said there had been a “technical error” in how the distribution was classified in the company account.

Cossell will hand over to Matt Blowers by 2022, as part of “a long-planned succession”, but he remains as vice-chairman up until this February. He became a “truffle-hunter” in search of takeovers that would help grow the company.

The boardroom was a different place in 2022. However, the fat checks for the executives continued to come — despite the effects of the pandemic that delayed construction and caused inflation in the industry.

ISG’s top-paid executive earned more than £18million in the final five years of the company, according to its accounts. This is equivalent to £3.5million per year.

ISG executives were enjoying the trappings that seemed to indicate the company’s apparent success. Rivals, however, were furious. Construction firms made a vow after the Carillion collapse not to bid as low as they could to try and get work.

The chief executive of a competitor said that ISG was known for doing just that.

The £3 billion Britishvolt in Northumberland project collapsed even before the first spade had been wielded

In November, ISG struggled to pay subcontractors for two of the company’s most prominent jobs. Britishvolt’s £3billion gigafactory project in Northumberland as well as the £700m Sunset Waltham Cross movie studio complex.

Britishvolt failed before the first spade was even pushed into the ground in 2023. It was bad news not only for ISG, but also for the owner of the company: Harrison had invested millions in the project and was its second-largest shareholder.

Price and interim finance specialist Andrew Page replaced Blowers in February.

In July, it appeared that ISG had a buyer. It was a company based in London called Antipodean Holdings. Antipodean Holdings was formed in May by South African Andre Redinger, a businessman from South Africa, and an Australian named James Overton to facilitate the deal.

Redinger had previously founded a company called Millhouse, but he did not have any experience in construction. He claimed to have an expert team behind him.

ISG attributed the “red tape” to the roadblock that halted the deal despite weeks of assurances that it was imminent. Price informed staff that the deal could not be completed because Antipodean lacked the funds.

Redinger, speaking from Cape Town Saturday, told a completely different story. He claimed that he had discussed a possible ISG bid in February. He claimed that when his team performed due diligence they discovered things were not as they had expected.

The hole in the finances was much larger than was initially thought. “Way greater,” he stated. The original working capital that was required, was insufficient.

He claimed he had gone back to ISG and revised his offer to plug the gap. “[I] wanted to be sure that, if we took over, I wouldn’t drop this child. I won’t be the one to run this child into the wall.

He said that the two parties could not come to an agreement on a price. He said he was “very disappointed”. “I wanted to create a new vibe in that space.”

In October of last year, ISG creditors who claimed to be owed money began to submit winding-up petitions.

Alandale Group, a London-based subcontractor, delivered the coup de grace. The winding-up application, filed at the High Court Tuesday, prompted the board to call in EY administrators on Thursday, while Harrison was still the chairman.

ISG had a number of projects on its slate when it collapsed, including contracts with the Ministry of Justice for the refurbishment of some of Britain’s crumbling prisons as well as agreements to build schools in Wales or Manchester.

Last week, the Cabinet Office announced that it has “detailed contingency planning” for securing sites.

Sources in the industry said that ISG’s project would be most likely completed by another contractor, but its collapse still poses risks for scores of subcontractors who relied on ISG to provide work. Many of these small companies are susceptible to supply chain shocks that could delay payment in a highly fragmented market.

ISG’s collapse will undoubtedly cause uncertainty among its employees, but in a field that has struggled for years with a shortage of workers, there is still hope.

Liam Byrne is the chair of the Business and Trade Select Committee. He said that Parliament will want to know what happened at ISG.

The inquest into ISG’s collapse is likely to raise questions about management and the board. Financial Reporting Council launched a full investigation into the actions of directors following the Carillion scandal.

MHA, ISG’s auditor, has signed off the last set of accounts published with no indication of future problems. The firm stated that its audit of the company’s financial statements for the year ending December 2023 has been delayed due to “going concern issues”.

Liam Byrne (chairman of the Business and Trade Select Committee) has indicated that the issue will be discussed by the MPs. Labour MP Liam Byrne said: “I am deeply concerned about the collapse of another major employer, which threatens thousands of jobs.”

The parliament will want to know what happened at ISG before the new audit reform bill and corporate governance is passed. This way, we can ensure that our laws in the future are much better prepared.

The industry will be concerned that ISG’s case is not unique. A senior source said, “This was basically a business which tried to do way too many tricks. It had no focus. They didn’t look at their margins. And they got stuck with fixed price contracts.” “And I’m afraid there will be many more failures to come.”