The rollercoaster ride that was RSM Tenon has reached a predictable end

There weren't too many winners.

Having been the subject of a speculative bid from rival mid-tier firm Baker Tilly in late July, a Stock Exchange announcement yesterday made it clear that the latest experiment in non-partner ownership for an accountancy firm had come to a sticky end. The firm was put into pre-pack administration and the operational elements immediately snapped up, by Baker Tilly. If RSM Tenon was expecting this outcome no one told its PR team, judging by the RSM Tenon website, where the lead press release in its media centre is a comment on the national insolvency statistics.

Baker Tilly appears to have played a blinder with the biggest questions about the merger answered by the prepack deal, which means it doesn’t have to shoulder the listed company’s debts. The losers from the deal would appear to be the shareholders (although the smarter ones should already have been expecting to lose most, if not all, of their investment for some time) and Lloyds Bank.

 Few people will feel much sympathy for the bank, which due to its ongoing involvement in the financing of the deal may not have to write-off all of the estimated £80m of debt.

In truth there haven’t been too many winners throughout the saga of RSM Tenon, which has really reached a low point with the discovery of a black hole in its own finances (never a good thing, but catastrophic for an accountancy firm seeking to break with tradition). So what lessons does the whole saga offer?

1) “Turnover is vanity, profit is sanity”. Thanks to its regular use on TV reality business shows such as Dragons’ Den, more people are familiar with the idea that growth at all costs can often come at a terrible price. The undoing of RSM Tenon can at least in part be traced back to aggressive expansion strategy that rested on growth by acquisition. Most of these acquisitions happened at the top of the market.

2) The recovery will see insolvencies climb. One feature of this recession has been staggeringly low interest rates. These have allowed the phenomenon of “zombie companies” to develop, and in some ways RSM Tenon was a zombie accountancy firm, able to limp along servicing its debts but no longer able to finance growth through acquisitions. In previous recessions as the economy recovers, interest rates pick up (as a sign of economic vitality and activity) and more businesses struggle. Some clearing out of the deadwood may not be bad for the economy, although the situation is further complicated by the Bank of England’s decision to tie unemployment in to interest rates.

3) The partnership model works, especially for accountancy firms. For all the critiques and brickbats thrown at it, it would appear to work better than any of the alternative structures, including setting up as a publicly listed company. The listing was in part meant to bring RSM Tenon access to financial markets to allow it to continue its expansion drive. But those markets have been sluggish and resistant to all but the safest lending and capital has been expensive to obtain.

4) We can expect further consolidation in the professional services market. Game-changing organic growth is difficult to achieve in any market and apparently even more so in accountancy. With the Big Four owning such a large slice of the market, there may be plenty of business out there for the rest of the field, but for a firm to jump up the top 10 requires consolidation of the sort offered by this deal for Baker Tilly.

5) There is a demand for greater competition. It’s been the buzzword since 2008, when a perceived failure by auditors to qualify the accounts of financial institutions on the brink of collapse was put down to a lack of competition having led to too much coziness and a loss of quality. To date there has been little hard evidence to prove that artificially generating competition in the market (though mandatory rotation or tendering of audits) will lead to any significant improvement in service quality. However, one aspect of the Baker Tilly takeover of Tenon is that it will create another significant player at the top end of the market able to handle more complex work. Life may be about to get even more competitive, with possible entrants from the far east and especially large Chinese firms (as in other industry sectors) looking to skill-up their employees with an eye to global expansion.

In the short term little will change in the UK profession as a result of this deal, other than for the employees and clients of the two firms. As with most pre-pack administration it is encouraging (especially for those employees) to see people keep their jobs. The longer-term ramifications for the profession, whether that is in confidence in the partnership model, or the degree of competition at the top end of the market, will take much longer to work through.

This piece first appeared on economia.

Photograph: Getty Images

Richard Cree is the Editor of Economia.

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The UK is dangerously close to breaking apart - there's one way to fix it

We must rethink our whole constitutional settlement. 

When the then-Labour leader John Smith set up a report on social justice for what would be the incoming government in 1997, he said we must stop wasting our most precious resource – "the extraordinary skills and talents of ordinary people".

It is one of our party’s greatest tragedies that he never had the chance to see that vision put into practice. 

At the time, it was clear that while our values of equality, solidarity and tolerance endured, the solutions we needed were not the same as those when Labour was last in power in the 1970s, and neither were they to be found in the policies of opposition from the 1980s. 

The Commission on Social Justice described a UK transformed by three revolutions:

  • an economic revolution brought about by increasing globalisation, innovation and a changing labour market
  • a social revolution that had seen the role of women in society transformed, the traditional family model change, inequality ingrained and relationships between people in our communities strained
  • a political revolution that challenged the centralisation of power, demanded more individual control and accepted a different role for government in society.

Two decades on, these three revolutions could equally be applied to the UK, and Scotland, today. 

Our economy, society and our politics have been transformed even further, but there is absolutely no consensus – no agreement – about the direction our country should take. 

What that has led to, in my view, is a society more dangerously divided than at any point in our recent history. 

The public reject the status quo but there is no settled will about the direction we should take. 

And instead of grappling with the complex messages that people are sending us, and trying to find the solutions in the shades of grey, politicians of all parties are attached to solutions that are black or white, dividing us further. 

Anyone in Labour, or any party, who claims that we can sit on the margins and wait for politics to “settle down” will rightly be consigned to history. 

The future shape of the UK, how we govern ourselves and how our economy and society should develop, is now the single biggest political question we face. 

Politics driven by nationalism and identity, which were for so long mostly confined to Scotland, have now taken their place firmly in the mainstream of all UK politics. 

Continuing to pull our country in these directions risks breaking the United Kingdom once and for all. 

I believe we need to reaffirm our belief in the UK for the 21st century. 

Over time, political power has become concentrated in too few hands. Power and wealth hoarded in one corner of our United Kingdom has not worked for the vast majority of people. 

That is why the time has come for the rest of the UK to follow where Scotland led in the 1980s and 1990s and establish a People’s Constitutional Convention to re-establish the UK for a new age. 

The convention should bring together groups to deliberate on the future of our country and propose a way forward that strengthens the UK and establishes a new political settlement for the whole of our country. 

After more than 300 years, it is time for a new Act of Union to safeguard our family of nations for generations to come.

This would mean a radical reshaping of our country along federal lines where every component part of the United Kingdom – Scotland, Wales, Northern Ireland and the English regions – take more responsibility for what happens in their own communities, but where we still maintain the protection of being part of a greater whole as the UK. 

The United Kingdom provides the redistribution of wealth that defines our entire Labour movement, and it provides the protection for public finance in Scotland that comes from being part of something larger, something good, and something worth fighting for. 

Kezia Dugdale is the leader of the Scottish Labour party.