After battling it out for survival for nearly a month, Buckingham Group announced that they would file for administration, with over 400 jobs lost and casting major doubt around projects such as Liverpool FC’s Anfield Road stadium expansion. Grant Thornton said the company faced significant cashflow issues and was unable to refinance, leading to its collapse. Kier’s acquisition of Buckingham Group’s rail assets accelerates their strategic plans by enhancing their current capabilities and fast-tracking their growth and operational objectives in the rail sector.
This acquisition is an example of accretive acquisitions aimed at enhancing long-term value and capabilities within Kier’s core markets.
August has been a tough month for the construction industry, with the loss of significant players such as Allma Construction and Henry Construction, showcasing a tumultuous period for the sector as a whole. And though the month of August has ended, the crisis in construction sadly appears to be far from over. Kier is delighted to integrate Buckingham Group’s rail operations, welcoming new employees and clients with a positive outlook for future collaborations and enhanced capabilities.
Key Takeaways
- Buckingham Group announced its filing for administration, leading to over 400 job losses and impacting significant projects like Liverpool FC’s Anfield Road stadium expansion.
- August saw the collapse of major construction companies such as Allma Construction and Henry Construction, indicating a broader crisis in the construction sector.
- The company cited “rapidly escalating contract losses,” “sharp reduction in liquidity,” and “deep losses and interim cash deficits” as key reasons for ceasing operations.
- Red Flag Alert had flagged Buckingham Group as high risk in October 2022, months before other providers, showcasing their system’s 92% accuracy in predicting insolvencies.
- The insolvency crisis in the construction industry, driven by high material costs, labour shortages, and cash flow issues, poses significant risks to the UK economy, potentially limiting future growth and causing widespread job losses.
- The acquisition by Kier aims to ensure continued service delivery to former Buckingham Group clients, maintaining project fulfillment and client satisfaction. This acquisition is seen as an excellent strategic fit, enhancing operational capabilities and supporting Kier’s strategic goals in the rail sector.
- This move aligns with Kier’s rail strategy to enhance their operations in the rail sector, improving capabilities and securing new clients, thereby accelerating Kier’s overall business strategy.
What Happened at Buckingham Group?
Buckingham Group announced on the 17th of August that all trading had ceased. In the original statement, released on the company’s website, the Group blamed “rapidly escalating contract losses and a sharp reduction in liquidity”. They also said that “the business has been outweighed by deep losses and interim cash deficits” causing a sharp downturn in profitability.
Their subsequent statement, released on September 4th, confirmed the appointment of administrators and claimed; “The legacy issues faced by the Company and ongoing losses were simply too great to enable to refinance to success in an acceptable timescale.”
Buckingham Group Contracting, also known as Buckingham Group Contracting Ltd, was an industry leader, with a turnover of £655 million in 2021, a figure 99.6% higher than other companies in the construction industry. Originally founded in 1955, they worked on football stadiums across the UK and key infrastructure projects, such as HS2 and multiple other railways. The rail division of Buckingham Group has been picked up by Kier Group, saving 180 jobs, and rescuing projects such as Network Rail’s £78M plans to electrify the railway between Bolton and Wigan. The acquisition of Buckingham Group’s rail assets by Kier is expected to accelerate their operational goals and enhance capabilities in the rail sector.
The joint administrators from Grant Thornton are actively managing the transition of assets and staff following the collapse of Buckingham Group.
The acquisition also introduces new rail clients to Kier, enhancing their service offerings and client base in the rail sector. Additionally, the integration of new employees from Buckingham Group into Kier is anticipated to contribute significantly to the company’s growth and capabilities.
This tumultuous market proves that having in-built protections through data technology is now an essential safety net for those operating within multiple sectors, but particularly in construction, where over 4,000 businesses have gone insolvent this year alone.
Flagging Issues to Users
At 92% accuracy, Red Alert’s insolvency scoring is the most accurate currently available on the UK market. Many competitors didn’t notice the issues at Buckingham Group until much later in 2023, users were aware of the failings at the organisation, and that it was identified as high-risk, months before anyone else. Receipts were received at the end of the month while large payments to subcontractors were due earlier, contributing to a cashflow crisis that ultimately led to the company’s collapse. Companies that use Red Flag Alert can protect themselves and be aware of exactly who they are doing business with, to avoid unnecessary risk in an unstable environment. Want to find out more? Download the full report on the Buckingham Group.
“It’s been a tough year for everyone in the construction sector,” said Richard West, Managing Director of Red Flag Alert. “We’ve seen a steep rise in the cost of operations and a noticeable impact of bad debt when other companies fail. These economic parallels have caused the perfect storm of insolvencies for those operating within the construction sector. And that’s not good for British industry overall.”
“Here at Red Flag Alert, we try to lessen the impact of bad debt by giving our users vital information at their fingertips and allowing them to set up an unlimited number of companies within our monitoring feature. That way, if anything changes, they’ll be the first to know and can take appropriate action as soon as possible.”
The Buckingham Group faced significant financial challenges, with excess amounts owed and pressures from financial mismanagement contributing to its collapse. Being a great company to work for contributes significantly to overall business success, and the acquisition of Buckingham Group’s assets by Kier aims to retain skilled employees and provide continued employment opportunities.
“But let’s be clear – things are getting rocky out there, and businesses need to do everything they can to protect themselves from the impact. They need to monitor customers, suppliers, and partners with software like Red Flag Alert, and they must be aware of the financial history within businesses so they can safeguard their own operations.”
The Ongoing Issues for Construction Companies
August alone brought 44 companies into insolvency, a monthly record that no one wants to beat. Although small organisations are most at risk, losses to industry leaders such as Buckingham Group show that no one is immune to the ongoing issues within the sector. The significant debts accrued by Buckingham Group have left unsecured creditors uncertain about the return of any funds following the insolvency proceedings. A mixture of global and economic factors, coupled with high material costs, labour shortages and cashflow issues, all caused hundreds of thousands of staff to lose their jobs, with more at risk. Buckingham Group’s operations in Buckinghamshire highlight the geographical significance of the area in the company’s history and operational scope within England and Wales.
Despite the financial distress, a subsidiary of Buckingham Group continues to trade, highlighting ongoing business operations amid the challenges. The company had comprehensive capabilities in multi-disciplinary construction, with civil engineering and demolition being key areas of focus that contributed to their significant turnover and project diversity.
The financial difficulties faced by Buckingham Group also impacted their leisure operations and sports sectors, leading to the elimination of numerous job positions after failing to find buyers for these parts of their business.
Red Flag Alert’s Chief Economist, Dr Nicola Headlam, warned that issues within the construction sector would have a widespread impact that could cause shockwaves in other areas of the economy. She said, “This is not good news for the industry and the UK as a whole. This will lead to a much smaller pool of construction companies available for contracts and for suppliers to do business with.”
“The post-recession economic bounce back will be hampered by a lack of building companies available for projects in the next growth stage and a supply chain that will be unable to respond to growth signals. This will choke off growth in the next economic cycle.”
“One potential upside of this situation is that a lack of companies competing for lucrative building projects could open up greater opportunities for solvent firms, as well as for acquirers within the construction sector. This includes buyers targeting distressed acquisitions, with the recent deal where Kier acquired rail assets from Buckingham Group for £9.6 million being a critical move to enhance their strategic position in the rail sector.”
“By supporting construction and funding house building, the government can turn the vicious cycle of insolvency in the industry into a virtuous circle where money flows through the supply chain as opposed to bad debt.”
1. Why did Buckingham Group collapse?
Buckingham Group stopped all trading on August 17th because of quickly growing contract losses, reduced cash flow, deep losses, and interim cash deficits.
The directors of Buckingham Group, alongside their advisors, attempted to secure a refinancing deal to address significant cash flow issues but ultimately could not overcome the company’s legacy challenges. This failure hindered their ability to implement a strategic creation plan aimed at enhancing value and capabilities in core markets. In the medium term, these financial issues are expected to significantly impact the company’s growth strategies and operations.
2. How many jobs were lost?
Over 400 employees lost their jobs due to Buckingham Group’s collapse, affecting major projects like Liverpool FC’s Anfield Road stadium expansion. However, Kier’s strategic acquisition of assets and staff from the Buckingham Group is providing work for many of these former employees, enhancing Kier’s operational capabilities and client relationships in the rail sector. Around 180 Buckingham staff jobs will transfer to Kier, ensuring continuity for these employees and bolstering Kier’s business operations.
3. How did Red Flag Alert predict the collapse?
Red Flag Alert flagged Buckingham Group as high risk in October 2022, well before other providers. A written statement of proposals by the administrators from Grant Thornton outlined the reasons for the collapse and detailed the financial losses associated with key contracts. Their system, with 92% accuracy, spotted multiple risk factors, including financial issues and reduced liquidity. As previously stated, Andrew Davies, the chief executive, referenced earlier commitments to pursuing value-accretive acquisitions in key markets, which underscores the strategic rationale behind acquiring Buckingham Group’s assets and emphasizes Kier’s focus on enhancing their rail capabilities and long-term value creation.
4. How common are insolvencies in the construction industry?
In the year before Buckingham Group’s collapse, over 4,000 construction businesses went insolvent. Buckingham Group faced significant financial troubles, with 1,258 claims lodged by creditors, indicating a broader context of insolvency and creditor interactions during the company’s collapse. The collapse of Buckingham Group is reminiscent of the notable failure of Carillion in January 2018, which marked a significant event in the construction industry. August alone saw 44 companies file for insolvency, showing the industry’s ongoing crisis.
5. What is the broader impact of Buckingham Group’s collapse?
Buckingham Group’s fall highlights the severe challenges in the construction sector, such as high material costs, labour shortages, and cash flow problems. Efforts by the directors and advisors to secure a refinancing deal were ultimately unsuccessful, leading to the company’s administration. Buckingham Group had significant operations in Manchester, underscoring its geographical presence and the scale of its workforce amidst the financial troubles it faced. This can hurt the UK economy by limiting growth and causing job losses.
The acquisition of Buckingham Group’s rail assets by the Kier Transportation business not only strengthens Kier’s position in the rail market but also enhances their capabilities and service delivery, while ensuring job security for transferred staff from Buckingham Group.
6. What advice does Red Flag Alert give to businesses?
Red Flag Alert recommends businesses monitor their customers, suppliers, and partners using their software. Maintaining strong relationships with clients is crucial, and businesses should use monitoring software to stay informed about the financial health of their clients to avoid bad debt. One such example is the strategic acquisition by Kier of assets from the bankrupt Buckingham Group, which aligns with Kier’s goals for growth in the rail sector.
Staying informed about the financial health of these business partners can help avoid bad debt and protect operations in unstable times. Certain functions will continue temporarily to support the transition to new ownership, emphasizing stability and service delivery amidst organizational upheaval.
