The Rise Of The Zombies?
The Daily Telegraph recently featured an article on Zombie Firms. It quoted research by Bank Of America (www.bankofamerica.com), which revealed that the UK is now Europe's capital for Zombie businesses, because it had a third of the total number in the region.
There are various definitions of what such a firm is, but last year KPMG (www.home.kpmg/uk/en/home) did put forward what seems to be a good definition: “ a company where turnover was static or falling, profitability was persistently low, margins were being squeezed, cash and working capital reserves were limited, leverage levels were high, and there was a limited ability to invest for the future.”
We can now add to that description: sustained by low interest rates and government-backed loans.
The argument goes that the Zombies prevent much healthier competitors from growing, which means the UK economy is not as productive or efficient as it should be.
The banking sector is often seen as propping them up to avoid incurring significant losses – and this restricts their capacity to lend to much more dynamic companies.
We don’t support that view, because our experience is that the commercial finance marketplace welcomes enterprising Firms, but we are only seeing it from a comparatively narrow standpoint.
Also, we have met few Zombie Firms, although it is a concern if, nationally, this trend continues.