Outsourcing firm Interserve agrees financial rescue plan

Deal reached to reduce company’s debt burden following talks with lenders and the Cabinet Office

Photo: PA

By Richard Johnstone

06 Feb 2019

Outsourcing firm Interserve has reached a deal with investors to reduce its debt burden following talks with lenders and the Cabinet Office.

The firm, which has a number of facilities management contracts across government departments including the Department for Work and Pensions, the Department for Transport and the Ministry of Justice, has been in talks with investors since concerns were raised over its financial health last year.

Interserve chief executive Debbie White said the plan had been agreed “following a long period of intensive negotiation and has the support of our financial stakeholders and government”.


Under the agreement, which is intended to reduce the company’s £600m of debt to around £275m, Interserve will issue around £480m of new shares. Lenders will provide an additional £75m of borrowing.

White said: “Agreeing the key commercial terms of the deleveraging plan with our lenders, bonding providers and pension trustee is a significant step forward in our plans to strengthen the balance sheet. The board believes that this agreement will secure a strong future for Interserve.

“Its successful implementation is critical to the Interserve group's future and all of its stakeholders. The deleveraging plan will, alongside our 'Fit for Growth' transformation programme, place us in a strong position to deliver our strategy, be competitive in the marketplace and provide a secure future for the Interserve group's employees, customers and suppliers."

In a statement, the Cabinet Office said: “We welcome the announcement that Interserve has made this morning and recognise it is a key milestone for the company in delivering the long-term recovery plan that it set out in 2018.”

Concerns over Interserve's financial health were raised last year, just days after the collapse of fellow outsourcing firm Carillion.

The firm, which said it has taken over the employment of some 20,000 government workers as part of outsourcing deals, said it was implementing a transformation plan.

The plan includes a renewed focus on winning contracts in the government and defence sector, which was identified as one of four key sectors for the business, in addition to private sector, communities, and citizen services.

The reform plan comes as the government is proposing a range of reforms to government outsourcing.

Cabinet Office minister David Lidington has set out reform plans in two tranches. He first intends to change procurement rules to include “social value” in assessments of providers for government work and to require the publication of key performance indicators – such as response rates, on-time delivery and customer feedback – for critical contracts. The second round includes plans to further increase transparency through the development of so-called living wills for major outsourcing contracts that set out how services could be managed in the event of a corporate failure.

Plans for these changes have been developed by civil servants working with the outsourcing industry, according to government’s chief commercial officer Gareth Rhys Williams. Interserve said last year that it was “working closely with the Cabinet Office in evolving the way the sector engages with the UK government”.

The Interserve deal came as a report claimed that government outsourcing spending had reached its highest level for three years in 2018.

According to the Arvato UK outsourcing index, technology investment saw public sector spending climb to £2.9bn last year, the highest level since 2015. This is up from £1.8bn in 2017.

Despite this, the average value of central government contracts fell by 8% in the year, meaning that departments and agencies were more focused on deals for technology as part of ongoing government efforts to unbundle big tech contracts.

Civil Service World's parent company Dods is holding an event reviewing the fallout from the Carillion collapse. After Carillion: the future of public sector insourcing and outsourcing, will be held on 14 March in London. CSW readers save 20% on a place by using promo code ‘CSWMARCH2019’

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