According to the Federation of Small Businesses, 53% of the UK’s SMEs are expected to collapse or reduce their activities as a direct result of the cost of energy crisis. The forecast applies to SMEs and private firms with 250 employees or less.

The current dire financial outlook is affecting businesses of all sizes from every sector. In September, the UK Government introduced an energy bill relief scheme which will support businesses whose gas and electricity prices have increased significantly for the next six months.

In this article, we will explore the ramifications of the energy cost crisis and wider economic malaise for sectors as diverse as energy, hospitality, and entertainment. Keep reading to uncover the opportunities available to savvy business owners in this current climate looking to make distressed acquisitions way below market value.

Energy

In just the first two months of 2022, three small energy companies collapsed according to Ofgem. Whoop Energy and Xcel Power went bust in early February as energy prices rose by around £700.

Whoop Energy supplied just 50 households, while Xcel Power provided energy for 274 business customers. In January, Together Energy started the trend of failed energy companies, going into administration, affecting 176,000 customers. British Gas took on all Together Energy’s customers, which included those receiving energy from its subsidiary Bristol Energy.

Since January 2021, 31 energy suppliers in total have called in administrators.

10 most recent energy firm collapses

*See the full list at the following link

Things could have been even worse for the energy sector if not for government intervention. Major energy supplier Bulb went into special administration in September 2021 after the global rise in energy costs proved too much to bear. Bulb was eventually placed into special administration after Ofgem was unable to identify a suitable energy supplier to switch Bulb customers to. With Bulb supplying 5-6 per cent of the UK energy market, the government could not afford its failure.

The government decided to intervene with grants and loans to the company in an effort to ensure it could continue functioning until its future was decided.

Liz Truss’ ailing government however has so far failed to stop the cost of Bulb’s demise being passed on to taxpayers a cross party of MPs has warned. So, what will come next for the beleaguered energy sector, as on the 14^th October Kwasi Kwarteng was fired from his position as Chancellor of the Exchequer?

On the 17^th October, new Chancellor Jeremy Hunt reversed all tax measures in the mini budget and rolled back the energy price guarantee to only cover this winter. In April 2023. A treasury-led review will consider future provisions.

In addition to the energy cap made available to household consumers, in September 2022 the energy bill relief scheme was introduced for non-household consumers, including under siege SMEs. So far, this support has remained unaffected by government U-turns, however it may be too little too late for many ailing energy providers, opening up opportunities for more profitable and financially healthy competitors to snap them up and turn them around.

Hospitality

The Times has reported that UK Hospitality estimates that 10,000 businesses could shut permanently in the next 18 months. This could lead to 500,000 staff losing their jobs according to UK Hospitality CEO Kate Nicholls. A further 200,000 working in supply chains could stand to lose their jobs too.

In August, a joint letter was sent to the ex-Chancellor by the Campaign for Real Ale and Society of Independent Brewers. The letter issued a warning of the “grave uncertainty” in the face of rising energy bills.

Since bills have been capped in September at £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas, some businesses have enjoyed a brief respite. However, forecasts, predict mass closures, with businesses still struggling to recover from the pandemic likely to be unable to afford their energy bills.

Matthew Fell, chief policy director of the Confederation of British Industry, commented on the cap: “We welcome [the] government’s quick and decisive action to provide hard-pressed businesses with a substantial short-term fix to a long-term problem.

“The package will ease worries about otherwise viable businesses shutting-up shop and smaller companies especially will benefit from the discounted rate.”

It remains to be seen how many firms that had been facing imminent closure will now survive throughout the winter thanks to the energy cap. But what remains clear is that there will be opportunities to purchase distressed hospitality businesses for savvy owners before the spring.

Entertainment

We wrote earlier this month that the Edinburgh International Film Festival and Filmhouse Cinema faced their final curtain as the charity which runs the businesses was forced to call in administrators.

Cultural attractions and government institutions around Europe are reacting to soaring energy bills by switching off their lights. In Athens, the Greek Parliament is switching its lights off at dusk, even in Paris – The City of Lights – the Eiffel Tower’s distinctive glow is dimmed when the last visitor of the day leaves the historic attraction.

Overall, the cost of energy is instrumental to the future profitability of entertainment businesses. According to Phil Clapp, chief executive of the Cinema Association: “Cinemas need to be lit and heated to welcome customers. We can’t turn off the lights or the projector.”

This is a major problem when the average energy costs for cinemas have risen 15 per cent year-on-year since 2021. So, with energy costs rising how can cinemas prevent their profit margins being dangerously slashed?

Clapp says: “We can’t load the cost onto ticket price if we are going to get customers struggling themselves”. Opportunities may well present themselves to quick-off-the-mark investors in the coming months.

Theatres are under siege too with production costs skyrocketing – timber and metal costs have both surged by 30 per cent, putting strain on production budgets. Costs are rising across the board after September’s energy cap came into play theatres are being saddled with an average cost increase of 600 per cent. The Albert Hall for instance has the unenviable prospect of a £1 million energy bill between October and February despite government intervention. The venue’s management plan to turn off the lighting and heating where possible, but like the film sector where lighting is so central to the audience’s experience little wiggle room is available.

Inevitably, smaller or independent cinemas and theatres will struggle and combined with the lingering after-effects of the pandemic, a number of businesses will fail. Savvy business owners will keep their eye on these opportunities and can benefit from Administration List’s real time updates.

Real time updates – your competitive advantage

Administration List is your competitive advantage, allowing you to find distressed businesses for sale with real time updating. A quick search of Administration List will reveal the depth of our listings. You can filter your search to display companies that have appointed administrators or liquidators, or you can search for companies issued winding up petitions.

Our subscribers gain access to the UK contact details for administrators to enable rapid contact.

So, join Administration List today and utilise all the information you need to gain the competitive advantage essential to succeed in your next distressed business acquisition.