New data: Zombie company ‘invasion’ accelerates, finds Kearney
Leading global management consultancy Kearney has today released new data revealing troubling trends on the rise of zombie companies. With stubborn inflationary pressures pushing borrowing costs to decade highs, Kearney’s research reveals the number of zombie companies worldwide has grown by nearly 9% annually since 2010, now reaching 2,370.
In 2023 alone, Kearney identified 827 new zombie companies, a significant rise compared to the 534 companies that were “resurrected” by improved financial situations and the 127 that were delisted. This year-on-year increase underscores the severe impact of challenging financing and trading companies on these businesses, which now make up 5.8% of publicly traded companies globally.
To determine these figures, Kearney analyzed 75,000 globally listed enterprises across 154 industries and 152 countries. The data set includes more than 5.5 million individual data points and covers information from 2000 to the present day.
As a result of higher borrowing costs, many companies are finding it difficult to stay afloat, and the report confirms that this trend is showing no sign of slowing down.
Kearney conducted two stress tests that indicate a continued increase in zombie companies, especially if businesses are forced to refinance their existing debt at today’s elevated interest rates. For example, a company with $1m in annual interest payments would see this amount increase to $1.5 million with a 1.5-times interest rate hike. Assuming no other changes in company performance, this scenario would turn 6.6% of companies into zombies and a two-fold increase could push this figure even higher to 7.7%.
Looking at the size of zombie companies more closely, the report found that smaller companies continue to be more infested than any other group. In 2023, the share of zombies among companies with an annual revenue of $500m or less grew by nearly 9%, raising their share within this group from 6.2% in 2022 to 6.7% in 2023. Limited access to attractive refinancing options, coupled with weaker processes and governance compared to larger companies, could leave this cohort vulnerable to external shocks and may have had an effect here.
Kearney’s annual zombie report, Zombie buyers beware and hyperlink, is available in full, here. https://www.kearney.com/service/mergers-acquisitions/article/zombie-buyers-beware
Nils Kuhlwein, partner at Kearney, comments: “Although the very worst of the pandemic aftermath has subsided, another problem is taking a toll on zombie companies: higher interest rates. Zombie companies may have been able to avoid considerable financial pain as a result of cheap borrowing costs, but this is no longer the reality. The problem for many zombies is that they lack deep cash reserves, and the interest they pay on many of their loans is variable —not fixed—making higher rates all the more painful.
“The stress tests in this edition of our zombie company research have made it clear that the situation could be much worse, and there is nowhere to hide if debt levels are too heavy. To avoid filing for bankruptcy, or closing their doors permanently, zombie firms can give themselves a second chance with the right strategy, whether that’s restructuring or converting some of their debt to equity.”
Christian Feldmann, partner at Kearney, adds: “Given the harsh reality of the last year’s economic landscape, it’s not surprising that the number of zombie companies continues to rise as escalating borrowing costs posed exacerbated financial strain. The trends from our findings not only reflect the challenges faced by businesses in accessing affordable financing, but also highlight the urgent need for proactive measures to support their resilience.
“It’s not enough for these companies to wait for the markets to change, and it may well be time to consider whether it’s more advantageous to dig themselves out of financial trouble or put themselves on the market.”
