Jim Armitage: Anyone moving in on Interserve needs to tread carefully

If you believe the fee-hungry bankers, there’s a host of bidders looking to snap up the good bits of collapsed Interserve.

For those who’ve been on planet Mars, Interserve is the debt-laden service firm that went bust on Friday.

But while it may have collapsed into the hands of its banks, the business isn’t all bad. Previous management spectacularly messed up by getting into businesses it didn’t understand, but Interserve does have some healthy assets and, now, a strong executive team.

So you can understand why the likes of Mitie and Serco would sift the rubble for hidden gems.

However, there are seriously large reasons to doubt Interserve is a seller.

First off, the banks have presented a fairly united front backing the current management’s turnaround plan for the company. They’ve not pushed for asset sales before the thing went bust, so it seems unlikely they’ll change heart now.

Also, there’s a gulf between what Mitie, Serco and other potential bidders reckon the businesses are worth and what Interserve’s banks and bosses think.

Take its support services business. That’s the biggest division, with lucrative contracts managing large facilities for the private and public sector. Mitie reckons it’s worth £100 million to £150 million, but management values it at well over £300 million (£500 million, according to some).

Why such wide divergence in value?

Potential bidders claim Interserve’s banks simply don’t understand how rapidly contracts can vanish in a puff of smoke, leaving formerly big businesses with nothing. Once a change of control of a contractor happens — as has now occurred at Interserve — customers can break the contract and go elsewhere. And believe us, rivals say, we’re knocking on Interserve clients’ doors to win them over, and we will succeed.

Even if you assume only a few big Interserve clients leave, Mitie and co claim, current profit forecasts become meaningless. So the valuation of the business — calculated at, say, six times future profits — burst like a balloon.

Interserve, on the other hand, insists clients won’t leave. The last thing big customers like the British government want is for another big service provider to disappear like Carillion, it claims.

Given that gulf between potential buyer and seller, the more likely path currently looks like this: traditional banks such as RBS and HSBC sell their Interserve debt to specialist lenders; the new-look banking consortium creates a private equity-style structure to incentivise management; the bosses clear out the rest of the loss-making rubbish; Interserve floats back on the stock market in a couple of years.