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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Labour's establishment suspects a Momentum conspiracy - they're right

Bernie Sanders-style organisers are determined to rewire the party's machine.  

If you wanted to understand the basic dynamics of this year’s Labour leadership contest, Brighton and Hove District Labour Party is a good microcosm. On Saturday 9 July, a day before Angela Eagle was to announce her leadership bid, hundreds of members flooded into its AGM. Despite the room having a capacity of over 250, the meeting had to be held in three batches, with members forming an orderly queue. The result of the massive turnout was clear in political terms – pro-Corbyn candidates won every position on the local executive committee. 

Many in the room hailed the turnout and the result. But others claimed that some in the crowd had engaged in abuse and harassment.The national party decided that, rather than first investigate individuals, it would suspend Brighton and Hove. Add this to the national ban on local meetings and events during the leadership election, and it is easy to see why Labour seems to have an uneasy relationship with mass politics. To put it a less neutral way, the party machine is in a state of open warfare against Corbyn and his supporters.

Brighton and Hove illustrates how local activists have continued to organise – in an even more innovative and effective way than before. On Thursday 21 July, the week following the CLP’s suspension, the local Momentum group organised a mass meeting. More than 200 people showed up, with the mood defiant and pumped up.  Rather than listen to speeches, the room then became a road test for a new "campaign meetup", a more modestly titled version of the "barnstorms" used by the Bernie Sanders campaign. Activists broke up into small groups to discuss the strategy of the campaign and then even smaller groups to organise action on a very local level. By the end of the night, 20 phonebanking sessions had been planned at a branch level over the following week. 

In the past, organising inside the Labour Party was seen as a slightly cloak and dagger affair. When the Labour Party bureaucracy expelled leftwing activists in past decades, many on went further underground, organising in semi-secrecy. Now, Momentum is doing the exact opposite. 

The emphasis of the Corbyn campaign is on making its strategy, volunteer hubs and events listings as open and accessible as possible. Interactive maps will allow local activists to advertise hundreds of events, and then contact people in their area. When they gather to phonebank in they will be using a custom-built web app which will enable tens of thousands of callers to ring hundreds of thousands of numbers, from wherever they are.

As Momentum has learned to its cost, there is a trade-off between a campaign’s openness and its ability to stage manage events. But in the new politics of the Labour party, in which both the numbers of interested people and the capacity to connect with them directly are increasing exponentially, there is simply no contest. In order to win the next general election, Labour will have to master these tactics on a much bigger scale. The leadership election is the road test. 

Even many moderates seem to accept that the days of simply triangulating towards the centre and getting cozy with the Murdoch press are over. Labour needs to reach people and communities directly with an ambitious digital strategy and an army of self-organising activists. It is this kind of mass politics that delivered a "no" vote in Greece’s referendum on the terms of the Eurozone bailout last summer – defying pretty much the whole of the media, business and political establishment. 

The problem for Corbyn's challenger, Owen Smith, is that many of his backers have an open problem with this type of mass politics. Rather than investigate allegations of abuse, they have supported the suspension of CLPs. Rather than seeing the heightened emotions that come with mass mobilisations as side-effects which needs to be controlled, they have sought to joins unconnected acts of harassment, in order to smear Jeremy Corbyn. The MP Ben Bradshaw has even seemed to accuse Momentum of organising a conspiracy to physically attack Labour MPs.

The real conspiracy is much bigger than that. Hundreds of thousands of people are arriving, enthusiastic and determined, into the Labour party. These people, and their ability to convince the communities of which they are a part, threaten Britain’s political equilibrium, both the Conservatives and the Labour establishment. When the greatest hope for Labour becomes your greatest nightmare, you have good call to feel alarmed.