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In 2002 civil engineering and construction group Jarvis had a £1.1 billion turnover; two years later it was facing administration with debts of more than £400 million. It took just one phone call to save the business.

Stephen Norris likes a challenge. When the former Minister of Transport was elected chairman of construction and rail maintenance group Jarvis plc in 2004 he was charged with reducing its £189 million loss and servicing its £442 million debt.

Just two years earlier the group reported a £39 million profit from a £1.1 billion turnover but customer confidence was shattered in the business following a train crash on a Jarvis-maintained line. The group’s reputation was hit by the fatalities caused by the crash and its cashflow soon suffered when new contract awards were put on hold pending an investigation.

One of Norris’ first moves to reverse the group’s fortunes was to appoint US corporate turnaround firm AlixPartners. Within a year the firm had reduced Jarvis’ debt by £351 million while increasing its equity by £428 million.

“Jarvis would not be in existence today with a future ahead of it were it not for the work of AlixPartners,” Norris said.

AlixPartners’ work with Jarvis not only saved the group from liquidation it demonstrated the need for more failing firms to employ corporate restructuring professionals. This has been further highlighted by statistics released by business and consumer information company Experian.

Its figures showed that Jarvis’ turnaround stopped it from becoming one of more than 18,000 corporate failures in the UK during 2005. This figure passed the 20,000 mark last year, making 2006 the year with the most corporate failures since Experian began reporting in 1997.

“Our predictions for an overall increase in corporate failures have sadly rung true,” said Jo Howard, a director of Experian’s Business Information division. “The high rise in corporate failures during quarter four of 29.1% was the highest quarterly increase recorded since we started reporting them and has pushed 2006 into the red with an overall increase of 10.7% for the year as a whole.”

Early birds

One reason why Jarvis avoided becoming one of Experian’s statistics was that Norris approached AlixPartners for help before the problem got any worse, a growing trend for directors and financial backers wanting to save a business. Mark Fry, a partner at turnaround firm Begbies Traynor, recently told M&A that banks are now more likely to look at turnarounds as a first option, rather than force formal insolvency.

“There is more activity now with companies on the earlier part of the decline curve, driven by their professional advisers [and the] people who provide the money, saying ‘lets have a look at this business, we can do things with it, but it doesn’t necessarily require formal insolvency,” he added.

AlixPartners’ team that restructured Jarvis was led by managing director Eric Simonsen, whose previous successes including working with Cable & Wireless’ US operations. Simonsen revised Jarvis’ fortunes by selling its non-core assets to reduce debt and to fund its on-going operations. His work also included minimising construction losses, negotiating new funding agreements and exiting from remaining construction contracts.

“Once we established a point of view about what could be accomplished, we worked quickly and co-operatively with Jarvis’ managers, employees and external constituents to achieve steady progress toward a plan for success,” Simonsen said.

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