Rising rates are a “useful wake-up call” for firms who have allowed themselves to be lured into easy debt, says Plimsoll Publishing.
“Our research shows almost a quarter of UK CCTV companies are in more debt than they have been at any time in their history,” said David Pattison, senior analyst .
“Rising rates are a useful wake-up call. Many of the companies in question have been enticed by low interest rates and the lure of easy debt secured on rapidly rising property prices, and so have been able to cover up flaws in their business strategies – effectively buying time.
“There is just enough time left for these firms to look seriously at their balance sheets and change direction.”
If firms ignore the alarm call to reduce their debt they risk sleepwalking into danger.
Plimsoll has a track record of spotting the warning signs for businesses. Nearly nine out of ten failed companies in the UK had earned a “danger” or “caution” rating from Plimsoll in the two years before their demise.
Plimsoll says rising rates should bring stability to the UK CCTV market, because they will slow down the pace of acquisition activity. While this is unlikely to affect deals already on the table, companies with some money in the bank will probably leave it there, in the shorter term at least.
This may be bad news for smaller firms hoping to sell out to the bigger players, but it’s good news for those fearing a hostile takeover.
The companies in the danger zone, however, may see themselves joining a wave of high profile distress sales as the banks tighten their books – unless they take action now, before the Bank of England announces further rises.
Plimsoll (www.plimsoll.co.uk) publishes comparative research on the value of security companies for those researching acquisitions.
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