ISG goes bust: after Carillion, how has this happened again?

Two years ago, at the glittering, glass-clad offices of the construction giant ISG in London’s up-and-coming Aldgate district, building sector grandee Paul Cossell was bullish. “I think our industry is getting sexier,” he declared. “We can help save the planet.”
He had good reason to be so confident. The veteran ISG boss had become chairman of the industry body Build UK having been named “CEO of the year” at the Building Awards three years previously.
The judges said he had won so much business that in 2018-19 ISG rose from 17th to third in the rankings of turnover from its building contracts.
What a difference a few years makes. On Friday, Zoe Price, ISG’s recently promoted chief executive — another long-serving executive at the company — emailed her 2,400 employees: “Some of you may have seen reports in the media that ISG has filed for administration here in the UK. With sadness, I can confirm that this is factually correct.”
The collapse sent shockwaves through the construction industry. With all but 200 of the 2,400 people made redundant immediately, ISG ranks as the biggest insolvency in the sector since Carillion, whose collapse in 2018 sparked a wave of recriminations.
Like Carillion, it was a major government contractor and was involved in dozens of public sector projects, including prisons and schools, worth £1.2 billion. Private-sector names to have called on ISG’s services include blue-chip clients from KPMG to Google. ISG also worked on London landmarks Kew Gardens and Lords Cricket Ground.
While a host of projects have been thrown into a state of turmoil as contractors scramble to work out what happens next, tough questions are being asked of an industry that had vowed to clean up its act after the Carillion scandal.
Then, as now, angry clients are wondering: how did a company that was not long ago toasting £2.2 billion of annual revenue, and a healthy profit to boot, be reduced to rubble?
ISG began as a division of the developer Stanhope, formed to improve the quality of the builder’s fit-out work while it was building Broadgate, the office development next to Liverpool Street station in London, in the 1980s.
David King led a management buyout of the operation in 1989 and went on to float the business on AIM in 1998 under the name Interior Services Group (ISG). It soon branched out into broader construction jobs as the 2012 Olympics created a flurry of work. ISG built the Olympic Velodrome, where Sir Chris Hoy and Dame Laura Kenny prevailed in a magical summer of sport.
For Stanhope founder Sir Stuart Lipton, diversifying from interiors was a mistake. “It started out as a very focused business but they then went and got into everything else,” he said.
“The margins are very tough in heavy construction — any company that entered into fixed-price contracts has ended up losing their pants.”
ISG’s near-two decade stint on the London Stock Exchange came to an end in 2016 as the business failed to fend off an £85 million hostile takeover by US investment group Cathexis.
Cathexis is the family investment office of William Harrison, a 38-year Texan billionaire who is the great-grandson of a Texas oilman and land baron called Dan Harrison. William has been at the helm of the family since the death of his father, who in 2004 aged 54, died after being attacked by a swarm of bees while driving his tractor.
William Harrison is a controversial figure in the US, having recently put up a 20-mile barbed wire fence around an 88,000-acre Colorado ranch that he bought for $105 million in 2017 in a dispute over land. Harrison said the fence was built to tackle poachers.
Having opposed Cathexis’s takeover, ISG’s then-chief executive David Lawther was replaced within weeks by Cossell, a company lifer, proud cyclist and the head of ISG’s fit-out and engineering services.
After the takeover, those at the top were rewarded handsomely. The pay of the company’s best-paid director, believed to be Cossell, leapt from £900,000 in 2016 to £3 million the following year. Multi-million pound executive bonuses came on top, despite the painfully thin profit margins that ISG, like many of its competitors, was shouldering. ISG generated £9 million of pre-tax profit on £1.7 billion of turnover in its first year after being taken private.
• Mega-projects planning tool gets a Renatus Capital nod
As Carillion imploded in 2018, ISG stumbled on an apparent clerical error. The company paid a £25 million dividend to its shareholder later the same year, only to be forced to repay it after the company’s directors realised the distribution was unlawful, according to company accounts. Harrison said the dividend was the repayment of a loan Cathexis gave to the company and that there was a “technical mistake” in how it was categorised in the company accounts.
Cossell would hand over to Matt Blowers in 2022 as part of a “long-planned succession” but he remained as vice-chairman until February this year. He switched to being a self-described “truffle hunter” for takeover deals that would grow the business.
Although it was all change in the boardroom in 2022, fat cheques for executives kept coming — despite the fallout from the pandemic, which delayed construction projects and then saw inflation rip through the industry, pushing up the price of materials and labour.
ISG’s best-paid executive received more than £18 million in pay during the company’s final five years, analysis of its accounts reveals: equivalent to an average of £3.5 million a year.
As ISG executives enjoyed the trappings of what seemed to be the company’s success, rivals bristled. In the wake of the Carillion failure, construction firms had vowed not to race to the bottom to chase revenue and win work by bidding as low as possible.
Yet ISG had a reputation for doing exactly that, said the chief executive of one competitor.
Signs that things were going awry emerged in November when it was reported that ISG was struggling to pay its subcontractors after delays to two of its most high-profile jobs: Britishvolt’s £3 billion gigafactory in Northumberland and the £700 million Sunset Waltham Cross film studio complex.
Britishvolt went bust in 2023 before a single spade had gone in the ground. That was not just bad news for ISG but for its owner: Harrison was the project’s second-biggest shareholder and had poured millions of pounds into the business.
In February this year Blowers and chief financial officer Karen Booth were replaced by Price and interim finance specialist Andrew Page.
By July it looked like ISG had found a buyer in the form of a London-based company called Antipodean Holdings. Antipodean was founded in May for the purposes of doing the deal by South African businessman Andre Redinger and an Australian named James Overton.
Redinger previously founded a food company named Millhouse but had no experience in construction, although he claimed he had an expert team around him.
Despite weeks of insistence that the deal was imminent, the process hit a road block that ISG blamed on “red tape”. Price told staff last week that the sale could not be clinched because Antipodean did not have the necessary funds.
• Britain’s flat battery industry could light up again
Speaking from Cape Town on Saturday, Redinger told a different story. He said he had mooted a possible bid for ISG in February. However when his team did due diligence, he claimed, they found all was not as they had hoped.
“The hole [in the finances] was far greater than what was perceived. Way greater,” he said. “The original working capital which was perceived to be required was inadequate, way inadequate.”
He said he went back to ISG to revise down his offer so he could plug the hole. “[I wanted] to make sure that if we take over, I ain’t going to drop this baby. I’m not going to be the one who runs this child to the wall.”
He said the two sides could not agree on a price so he walked away. “I was very disappointed,” he said. “I wanted to bring a fresh vibe into that space.”
In October last year, creditors claiming they were owed money by ISG started to send in winding-up petitions to the Official Receiver.
The coup de grâce, though, was delivered by London subcontractor Alandale Group. Its winding-up petition, filed with the High Court on Tuesday, led the board, still chaired by Harrison, to call in administrators from EY on Thursday.
Among the projects left on ISG’s slate at the time of its collapse were contracts with the Ministry of Justice to refurbish some of Britain’s creaking prisons, as well as deals to build schools in Wales and Manchester.
The Cabinet Office said last week it had “detailed contingency plans” to secure sites.
Industry sources said ISG’s projects would most likely be completed by other contractors but its implosion still poses risks to scores of subcontractors and suppliers who depended on it for work. In such a fragmented industry, many of these small businesses are vulnerable to shocks in the supply chain that can delay payments.
ISG’s implosion will inevitably stoke uncertainty for its staff, although in a sector that has long struggled with worker shortages, there is hope many can be redeployed.
Nevertheless the inquest into ISG’s demise is likely to beg questions of management and the board. The Carillion scandal resulted in a full-blown investigation by the Financial Reporting Council into the deeds of directors.
MHA, ISG’s auditor, signed off its last set of published accounts with no hint of trouble ahead. However, the firm said its current audit on the company for the year to December 2023 had been delayed “due to going concern issues”.
Liam Byrne, the chair of the business and trade select committee, signalled the issue would be discussed by MPs. “I’m deeply concerned that we’ve another major employer collapse, imperilling thousands of jobs,” the Labour MP said.
“Ahead of the new audit reform and corporate governance bill, parliament is going to want to get to the bottom of what’s gone on at ISG so we can make sure our laws for the future are in much better shape.”
Meanwhile, the industry will worry that ISG is not an isolated case. “This was essentially a business that just tried to do too many tricks, had no focus, wasn’t looking at its margins and got stuck in fixed price contracts,” said a senior source. “And I fear there will be more [failures] to come.”