HIG Capital’s £400m Acquisition of KPMG UK Restructuring

By David Summers (London School of Economics)

 

Overview of the deal


Acquirer: H.I.G. Capital

Target: KPMG UK Restructuring

Total Transaction Size: £400M

Announcement date: 4th March 2021

Closed date: April 2021 (expected)

Acquirer advisor: DC Advisory

Target advisor: Evercore


The Miami-based private equity firm, H.I.G. Capital has acquired the UK restructuring and insolvency arm of ‘Big 4’ professional services firm, KPMG. Following reported rumours of the intended divestiture in October 2020, the acquisition will lead to the rebranding of the practice under the name ‘Interpath Advisory’. With Deloitte selling off its UK restructuring business to Teneo in February 2021, the transactions are in light of imminent legislation that will force the UK’s biggest audit practices to split off to ensure independence in their service offering. Interpath Advisory will be the largest independent restructuring and turnaround team in the UK; the business will be led by three of its current senior partners. With companies seeking adjustments to their capital and operational structures alike, which are due to serve Interpath Advisory well in its initial years.


“This is tremendously exciting news for our business and our people and opens up enormous growth potential. With over 500 people based across the full breadth of the UK, Interpath Advisory will become the largest independent restructuring and turnaround business in the country. From the strong foundations that we’ve built over the past 50 years, we’re looking forward to building a market-leading international advisory business that is capable of servicing the largest and most complex engagements.”- Blair Nimmo, UK Head of Restructuring (KPMG)

Company Details: (Acquirer - H.I.G. Capital)


H.I.G. Capital is a diversified alternative investment firm, focusing its investments across private equity, credit, real estate, infrastructure, growth equity, and BioHealth. Throughout its 17 offices, H.I.G. invests in portfolio companies throughout the US, Europe, and Latin America. Notable portfolio companies include Classmates (school yearbooks) and SPORTFIVE (sports marketing), within its active list of 164 businesses, having exited an additional 192 (including custom gaming controller brand, SCUF Gaming).


Founded in 1993, headquartered in Miami, Florida (USA)

Co-CEOs: Tony Tamer and Sami Mnaymneh

Number of employees: 400+ investment professionals

Assets Under Management (AUM): $44B


Company Details: (Target - KPMG UK Restructuring)


KPMG is a global professional services firm, with UK service lines of audit, tax, consulting, and deal advisory. Its restructuring practice sits within the deal advisory team and is mandated to advise its client list on challenging situations within financial distress or under-performance more broadly. The division is then split into 25 capabilities, such as insolvency services and risk management.


Founded in 1971, headquartered in London, UK

UK Head: Blair Nimmo

Number of employees: 22 partners and 528 staff

Market Cap: NA (privately held)

EV: £400M

Annual Revenue: £130M (as of 10/11/2020)

LTM EBITDA: £40M

LTM EV/Revenue: 3.1x

LTM EV/EBITDA: 10.0x


Projections and Assumptions

Short-term consequences


Breaking away from KPMG will allow for Interpath Advisory to continue serving its client list without breaching regulatory standards. As such, they can go on to seek new market opportunities and fully realise their potential, without restrictions on certain clients due to conflicts of interest. This will also serve as an attractive exit for KPMG UK, as they shift focus onto their other deal advisory streams, such as M&A and debt advisory services. Given the decline in insolvency appointments within the UK market for each quarter from Q3 2019 to Q2 2020, it is clear that the current market for restructuring advice is on a slump. The £400M cash injection will serve as an additional cash flow from investing activities, which was £121M for 2020.