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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Copeland must be Labour's final warning

Unison's general secretary says Jeremy Corbyn is a friend - but must also take responsibility for turning the party's prospects around. 

No one objective could argue that last night’s by-election results were good for Labour.

Whilst it was undoubtedly pleasing to see serial fibber Paul Nuttall and his Trumpian politics put in their place in Stoke, this was never a seat where the result should have been in doubt. 

But to lose Copeland – held by Labour for 83 years – to a party that has inflicted seven years of painful spending cuts on our country, and is damaging the NHS, is disastrous.

Last autumn, I said that Labour had never been farther from government in my lifetime. Five months on the party hasn’t moved an inch closer to Downing Street.

These results do not imply a party headed for victory. Copeland is indicative of a party sliding towards irrelevance. Worse still, Labour faces an irrelevance felt most keenly by those it was founded to represent.

There will be those who seek to place sole blame for this calamity at the door of Jeremy Corbyn. They would be wrong to do so. 

The problems that Labour has in working-class communities across the country did not start with Corbyn’s leadership. They have existed for decades, with successive governments failing to support them or even hear their calls for change. Now these communities are increasingly finding outlets for their understandable discontent.

During the 2015 election, I knocked on doors on a large council estate in Edmonton – similar to the one I grew up on. Most people were surprised to see us. The last time they’d seen Labour canvassers was back in 1997. Perhaps less surprisingly, the most common response was why would any of them bother voting Labour.

As a party we have forgotten our roots, and have arrogantly assumed that our core support would stay loyal because it has nowhere else to go. The party is now paying the price for that complacency. It can no longer ignore what it’s being told on the doorstep, in workplaces, at ballot boxes and in opinion polls.

Unison backed Corbyn in two successive leadership elections because our members believed – and I believe – he can offer a meaningful and positive change in our politics, challenging the austerity that has ravaged our public services. He is a friend of mine, and a friend of our union. He has our support, because his agenda is our agenda.

Yet friendship and support should never stand in the way of candour. True friends don’t let friends lose lifelong Labour seats and pretend everything is OK. Corbyn is the leader of the Labour party, so while he should not be held solely responsible for Labour’s downturn, he must now take responsibility for turning things around.

That means working with the best talents from across the party to rebuild Labour in our communities and in Parliament. That means striving for real unity – not just the absence of open dissent. That means less debate about rule changes and more action on real changes in our economy and our society.

Our public servants and public services need an end to spending cuts, a change that can only be delivered by a Labour government. 

For too many in the Labour party the aim is to win the debate and seize the perceived moral high ground – none of which appears to be winning the party public support. 

But elections aren’t won by telling people they’re ignorant, muddle-headed or naive. Those at the sharp end – in particular the millions of public service employees losing their jobs or facing repeated real-terms pay cuts – cannot afford for the party to be so aloof.

Because if you’re a homecare worker earning less than the minimum wage with no respite in sight, you need an end to austerity and a Labour government.

If you’re a nurse working in a hospital that’s constantly trying to do more with less, you need an end to austerity and a Labour government.

And if you’re a teaching assistant, social worker or local government administrator you desperately need an end to austerity, and an end to this divisive government.

That can only happen through a Labour party that’s winning elections. That has always been the position of the union movement, and the Labour party as its parliamentary wing. 

While there are many ways in which we can change society and our communities for the better, the only way to make lasting change is to win elections, and seize power for working people.

That is, and must always be, the Labour party’s cause. Let Copeland be our final warning, not the latest signpost on the road to decline.

Dave Prentis is Unison's general secretary.