The demise of 2e2 prompts public sector customer concerns

Profit and loss keys
30 Jan, 2013

Further redundancies and break up of the business can be anticipated, claims IT credit guru.

2e2 Group's slide into administration has prompted concerns about the future of the IT services firm's public sector contracts.

Chad Griffin, Simon Kirkhope and Simon Granger of FTI Consulting were appointed joint administrators on 28 January.

Since their appointment, 316 of the company's 1,442 staff have been made redundant with immediate effect.

Eddie Pacey, head of EP Credit Management & Consultancy (EPCMC) told IT Pro the final nail in 2e2’s coffin was lower than expected operating levels for the current year.

“The recent departure of senior directors, including the finance director, suggests this and perhaps other issues,” Pacey said.

“The sheer scale of debt has become unsustainable in the last two to three years and there was no visible way out for investors,” he added.

In 2011, when the last company report was published, the group generated £395 million of revenue. However, its debts were so high it made a net loss overall.

In total, 10 UK companies operating under the 2e2 banner have been placed into administration. They include: 2e2 Holdings, 2e2 Investments, 2e2 Group, 2e2 Limited, 2e2 UK, 2e2 Managed Operations, 2e2 Property, Morse Overseas Holdings, Morse Group and Diagonal Quest.

While the administrators have not mentioned any more redundancies, Pacey thinks further job losses are inevitable.

“Even if sold piecemeal, acquirers do not like taking on cost and the longer it takes for buyers to come along, the greater the risk to all employees,” he said.

In a statement, FTI said it plans to sell the company as a going concern.

This might prove difficult, Pacey claims, because of the level of debt involved.

“[However] buyers will be interested in parts of the business and I can see O2 perhaps taking the joint venture [that it formed with 2e2 in 2011] on alone, with other buy and build businesses looking to buy some of the more profitable sides of the business,” he said.

2e2 has made significant inroads into the public sector market over the years, and Pacey thinks the move into administration could hit this part of its business hard.

"Some local health authorities had outsourced demand to 2e2 and face the problem now of either finding someone else or bringing requirements back in-house," he said.