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.

Photo: Getty
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Empty highs: why throwaway plastic goes hand in hand with bankrupt consumerism

We are in the throes of a terrible addiction to stuff.

A University of California study revealed this week that mankind has produced more than nine billion tonnes of plastic since the 1950s, with almost all of it ending up in landfill or the ocean. With the terrible effects of our decades-long addiction to throwaway packaging becoming increasingly apparent, it’s clear that a fresh approach is needed.

In April 2010, David Cameron set out his vision for Britain in the Conservative Party’s manifesto. Keen to show that the Tories had turned away from the "I’m Alright Jack" individualism of the 1980s, Cameron sought to fashion a softer, more inclusive brand.

The good society, Cameron argued, embraced much higher levels of personal, professional, civic and corporate responsibility. There was such a thing as society, and we’d all do well to talk to our neighbours a bit more. The Big Society, however, was roundly derided as a smokescreen for an aggressive tightening of the Government purse strings. And on the advice of his 2015 election fixer Lynton Crosby, Cameron later dropped it in favour of well-worn lines about economic security and jobs.   

While most would argue that the Big Society failed to amount to much, Cameron was at least right about one thing. We are happiest when we are part of something bigger than ourselves. No matter how much the credit card companies try to convince us otherwise, mindless individualism won’t make us nearly as contented as we’re led to believe by big conglomerates.

By any measure, we are in the throes of a terrible addiction to stuff. As a nation, we have run up unsecured debts of more than £350bn, which works out at £13,000 per household. Fuelled by a toxic mix of readily available credit and interest rates at historic lows, we cripple ourselves financially to feel the empty high derived from acquiring yet more stuff.

Purchasing has become a leisure pursuit, ensuring the rate at which we acquire new stuff exceeds the rate at which we can find somewhere to put it. Burdened with ever increasing amounts of stuff, consumers are forced to outsource their storage. The UK didn’t have a self-storage industry 30 years ago, but now it is the largest in Europe.

With the personal debt mountain soaring, we’d all do well to realise that we will never have enough of something we don’t need.

The growth of rampant consumerism has coincided with an explosion in demand for single-use plastic. Like the superfluous possessions we acquire, throwaway plastic packaging helps satisfy our desire to get exactly what we want without having any thought for the long-term consequences. Plastic packaging is easy and convenient, but ultimately, will do us immense harm.

In 1950, close to 1.5 million tonnes of plastic was produced globally. Today, the figure stands at more than 320 million tonnes. The vast majority of our plastic waste either ends up in landfill or the ocean, and our failure to kick the plastic habit has put is in the ludicrous position where there is set to be more plastic than fish in global seas by 2050.

There is also growing evidence that our penchant for endless throwaway plastic might be storing up serious health problems for our children later down the line. According to a University of Ghent study published earlier this year, British seafood eaters risk ingesting up to 11,000 pieces of plastic each year. The report followed UN warnings last year that cancer-causing chemicals from plastic are becoming increasingly present in the food chain.

Something must give. Unsustainable as our reliance on fast credit to finance ever more stuff, our addiction to plastic packaging is storing up serious problems for future generations. The instant gratification society, high on the dopamine rush that fades so quickly after acquiring yet another material asset, is doomed unless decisive action is forthcoming.

So what is to be done? The 2016 US documentary Minimalism points to a smarter way forward. Minimalism follows the lives of ordinary people who have shunned the rat race in favour of a simpler life with less stuff and less stress. The most poignant bit of the film features ex-broker AJ Leon recounting how he chose to forgo the glamour and riches of Wall Street for a simpler life. After a meteoric rise to the top of his profession, Leon decided to jack it all in for a more fulfilling existence.

While challenging the view that to be a citizen is to be a consumer is easier said than done, there are small changes that we can enact today that will make a huge difference. We simply have no choice but to dramatically reduce the amount of plastic that we can consume. If we don’t, we may soon have to contend with the ocean being home to more plastic than fish.

Like plastic, our bloated consumer culture is a disaster waiting to happen. There must be a better way.

Sian Sutherland is co-founder of campaign group A Plastic Planet which is campaigning for a plastic free-aisle in supermarkets.

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