Beyond the raw numbers, the implications of this increase in zombie companies are clear. In 2022, 2.1 million employees worked at zombie companies, four times higher than in 2021. Similarly in 2022, global economies allocated close to $1 trillion in capital to zombies – twice as much as in the previous year – thereof $790 billion in debt and $200 billion in equity capital.

With more companies falling under the ‘zombie’ definition, more previous zombies are also going out of business. In 2022, 11% of existing zombies went out of business compared to 7% in 2021. Reinstatement of previously-suspended insolvency rules paused during the COVID-19 pandemic may have had an effect here.

However, Kearney expects the rate of ‘zombification’ and failure of zombie companies to increase over the coming years in line with interest rates, should any further rises be implemented. Companies that will need to refinance fixed-rate loans over this period will face higher rates, adding to costs and increasing the likelihood that they qualify for zombie status.

Nils Kuhlwein, Partner & Managing Director, Head of Service Line Restructuring at Kearney, comments:

“Given the turbulent global economic situation, it’s not surprising that the number of zombie companies has risen in this most recent edition of our research. But that is not to say that this isn’t concerning. Companies unable to pay interest obligations through current profit are in a precarious position and it’s not enough to wait for the markets to change.

“Affected businesses will need to act now in order to claw their way away from the grave, and wider industry must take note of these examples of the ‘walking debt’ in order to adapt their own strategy.”

Alberto Fumo, Partner & Global Lead, Private Equity, Mergers and Acquisitions, and Transformations at Kearney, adds:

“Rising interest rates across much of the globe have placed a significant amount of pressure on businesses, but our stress tests in this edition of our zombie company research have made clear that it could be much worse.

“Some sectors are proving more resilient, some are showing real strain. The important thing will be to regenerate their business models and adapt quickly, to reduce the effect of any actual further rate hikes before they come into force.”

Methodology

To understand the current state of zombie companies, Kearney analyzed a dataset dating back to 2000 with more than 5 million data points on more than 70,000 global companies across 180 industries and 153 countries, including 41,400 companies active in 2022.

Kearney used the OECD’s internationally recognized definition of zombie companies to ensure consistency and comparability. The OECD classifies a company as a zombie if it meets the following three criteria:

Debt Service – The company cannot meet interest obligations using operating profits for three years in a row.
Active Operations – The company is currently engaged in active business operations, demonstrating ongoing activity in its industry.
Longevity – The company has a minimum of 10 years of market activity, indicating it is an established presence rather than a newcomer.

Kearney used the aforementioned criteria to review each company’s performance as outlined in their publicly available annual report.

About Kearney

Kearney is a leading global management consulting firm. For nearly 100 years, we have been the trusted advisor to C-suites, government bodies, and nonprofit organizations. Our people make us who we are. Driven to be the difference between a big idea and making it happen, we help our clients break through.