77,828 UK companies are classed as “Zombie” businesses. These companies, have seen their performance deteriorate to such as extent that they now exist merely to pay off their debts and survive.
Every corner of the UK economy is blighted by Zombie companies. They are posting growing losses and, despite the freeze in the credit markets, increasing their debts. A Zombie company typically has debts of 51% of their turnover – they merely exist to service their out of control liabilities. Many are also using their suppliers to finance their growing losses, by taking an average of 149 days to pay their bills.
They are falling behind the rest in their respective markets. They are extremely unproductive and their cost base is just too high. As a result, investment plans have been mothballed meaning their aging assets are further restricting their ability to remain competitive.
So can these Zombies be saved? The first thing they need to do is sort out their immediate finances. They have to convince their banks and suppliers to keep supporting them or not pull the plug. If they can pull that off then the hard work really starts. They urgently need to stem their losses and control costs. The longer it takes them to address these issues, the harder and less likely it is they will ever fix them.
However, there are some attractive takeover targets hidden among the Zombies and canny investors are seeing an opportunity to pick up a bargain. Some of these companies, stuck in a zombie state because of their balance sheet, have lots of potential for new owners to turn it around. Across the whole of the UK economy we have flagged 40,614 such companies.