In this leadership market update, we highlight three important questions about growth, which apply to both the restructuring market¹ and beyond.

(1) Are tangible outcomes being delivered? 

This should be the first question any potential investor asks.  

The last 18 months have seen unprecedented pressure on fee rates—we estimate roughly 10 times the levels experienced in 2019. Superficially, the situation seems to be improving, but this may well be because firms are offering substantial discounts. At the heart of this situation is the quality-value gap—the distance between the proportion of clients who say that the work professional services firms deliver is “high” or “very high”, and those who say that the same firms, working on the same projects, created value for their business. Approximately 80% of clients are positive about the quality of work delivered, but only around 50% say that the firm they hired created value. 

Restructuring services, because of the nature of the work involved, have a reputation for creating business value. The speed of intervention required, the type of work, and the depth of experience needed all make for some of the highest fee rates anywhere in the professional services industry—fees that are under considerably less pressure than some others in the industry as clients attribute such value to them.  

Moreover, success in the restructuring space is dependent on being able to make tough decisions very quickly. It requires people with decades of relevant experience to cut through financial and operational complexity, which means that restructuring work will be very resistant to the encroachment of AI—the big fear that’s currently stalking the professional services industry. 

(2) Are clients’ needs fundamentally changing? 

Clients’ response to the polycrisis in 2023-24 was to wait. As in 2020, clients tried to avoid making significant, irreversible changes—the kind of changes typically associated with restructuring—because they expected things to improve. But that attitude may be changing.  

As we’ve noted elsewhere in this series, uncertainty has tipped into unreliability, with more clients being frightened into taking action and others moving forward as they are determined to make the best of a difficult situation. Frightened clients in particular are likely to take immediate action and, while much of that will be tactical, it doesn’t necessarily mean it will be small-scale. We interviewed clients recently whose responses have varied from outsourcing significantly more processes to give them a more variable cost base, to others that were restructuring parts of their business that have become loss-making as a result of tariffs. We expect this points to a long-term shift in behaviour, in which clients apply restructuring-type thinking to individual business units, not because they’re teetering on the edge of bankruptcy, but because they need to deliver rapid and significant improvements in performance—the kind of change that conventional cost-cutting won’t deliver.  

However, evolving demand also poses a challenge for the restructuring industry. “Restructuring” implies problems to be fixed, rather than improvements to be made, something that may resonate less well with clients and which could mean restructuring work becoming embedded in other performance improvement work and losing its distinctiveness. This lack of visibility could undercut the value of restructuring expertise as investors find it increasingly hard to distinguish between a restructuring firm and, say, a conventional Big Four firm, albeit without the conflicts that come from having an audit business (which is why KPMG and Deloitte sold their restructuring businesses in the first place). 

(3) To what extent is past performance a guide to future growth? 

One of the main reasons why restructuring has been an attractive market in the past stemmed from the fact that this type of work—helping clients make significant operational and financial changes to their businesses to stave off bankruptcy and deal with insolvency—was counter-cyclical. For firms with services that were vulnerable to downturns in the global economy (e.g. management consulting), restructuring services could help even out overall performance.  

However, our data suggests that this will be less of an advantage going forwards. In 2009-10, the numbers of companies filing for Chapter 11 in the US (around 60,000), was roughly twice the historic norm, and gave rise to a huge jump in demand for restructuring work. But in the comparatively benign economic environment that followed, restructuring services grew more slowly than the overall market, with 5-6% growth in 2018-19, compared to almost 8% across the $1.1tn total professional services market. In the early days of the pandemic the assumption was that demand for restructuring work would soar, as it had done during the financial crisis 10 years earlier, but government support for businesses, which tapered off only gradually, forestalled that. By late 2023, the polycrisis, triggered by Russia’s invasion of Ukraine and the consequent impact on inflation, meant that the global economy had weakened again, but instead of bucking the trend, as might be expected given the nature of these services, demand for restructuring support dropped more steeply than the average.  

This data suggests that the direct relationship between demand for restructuring and economic contraction may be much weaker in the future for two reasons. Firstly, government intervention during COVID may set a precedent for their future action, meaning that the type of catastrophic decline in economic activity likely to trigger a surge in demand for restructuring won’t happen. Secondly, the level of uncertainty and discomfort felt during prolonged periods of low growth isn’t sufficient to drive a large number of companies close to or into bankruptcy. Past performance is not a good guide to the future in the current environment. 

So what? 

Considering all three of these questions together, restructuring expertise—especially the ability to create business value at breakneck speed—could play a critical role in reinvigorating a consulting industry that’s struggling to persuade clients that it has anything new to say or do in a performance improvement space that could be increasingly vulnerable to AI-enabled productisation. However, investors shouldn’t assume that past performance will be a reliable guide to the future. Government intervention and long-term low-growth won’t create the conditions required to drive above-average performance in the restructuring market. Clients will need to make significant changes to their businesses but are unlikely to see these as “restructuring”. The challenge, therefore, will be how to reposition restructuring in clients’ eyes and to avoid restructuring skills becoming buried among other services.  

And these points hold true across the professional services industry more generally. Clients need to create concrete business value. Professional services firms need to deliver this if they’re to avoid the market being taken over by cheaper, AI-enabled services. Staving off this scenario will depend on reinventing and repositioning existing services, to reflect clients’ rapidly changing needs, but firms will also need to clearly demonstrate that they are putting (scarce and irreplaceable) human expertise right at the centre of their offering. 

¹ For the purposes of this article, we’ve defined restructuring as financial restructuring, operational restructuring, turnarounds, and insolvency work.

What can firms do next? 

To shape your firm’s strategy and investment plans in the restructuring market, it’s crucial to have access to robust and trusted data. For the latest information on the size, shape, and future trajectory of your market, contact us for tailored analysis & investment strategy expertise. Our experts will be happy to share our latest data and present their value-adding insights directly to you.