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July 31, 2013

Analysis: Baker Tilly UK’s interest in RSM Tenon

By Vincent Huck

Last week RSM Tenon announced Baker Tilly UK has expressed interest and was reviewing the potential opportunity to buy the firm. This interest in a firm with a wobbly recent history might come as a surprise for observers, but it might also be an opportunistic move for Baker Tilly UK.

Looking back at RSM Tenon’s recent history it is hard to see what sparked Baker Tilly’s interest. RSM Tenon has been struggling with financial difficulties since it merged with Bentley Jennison in 2009. The full scale of RSM Tenon’s trouble was revealed in early 2012, when the then chief executive, Andy Raynor, resigned following a 10% slump in revenues in the last six months of 2011.

In 2012, despite a year of restructuring and significant actions to reduce costs, RSM Tenon revenues failed to pick up: in October 2012 it reported an 8.8% drop in revenues in the year to 30 June 2012 and it later reported a loss of $9.8m in the six months to 31 December 2012.

As part of the restructure in 2012 RSM Tenon reduced its work force by almost 400 people and sold its Individual Voluntary Arrangement (IVA) business to Grant Thornton UK for £7m. Nevertheless, RSM Tenon’s debt to Lloyds Banking Group increased slightly at the end of 2012 and was at £80.4m.

"RSM Tenon has been a failing business for some time now," Andrew Jenner co-founder of Kato Consultancy sums up. But he still believes that Baker Tilly might be making an opportunistic move and be able to use the situation to their advantage.

"It would certainly be advantageous for Baker Tilly in terms of the scale involved," he said.

If Baker Tilly was to buy RSM Tenon, it could see its fee income nearly double and the firm would climb the ranking table to position itself right behind Grant Thornton UK and BDO UK.

"If you look at the Big Four, they will be impacted in the next few years by audit retendering regulations. By acquiring RSM Tenon, Baker Tilly UK would obtain a substantial scale which would eventually allow them to win some of the audit market," Jenner said.

In a most recent statement about the potential buy, Baker Tilly UK said that in the event it was to make an offer it would be solely in cash.

"Buying the business for cash seems to indicate that they are not making an offer for the shares in Tenon, what they are looking to do is buy the client base," Jenner said."They are taking the business as opposed to taking over the company. If they were buying the company they would have to buy the shares. It is an easier transaction to pay cash then to acquire the shares."

Baker Tilly’s interest in a new acquisition might have been trigger due to the BDO UK and PKF UK merger, finalised earlier this year. With this merger BDO increased its market share and closed the £100m gap between the firm and Grant Thornton UK.Baker Tilly UK might be seeing a move on RSM Tenon as a way to get back in the race. For Jenner it is plausible explanation and he believes that we haven’t seen the end of it: "These things are connected, one thing triggers another, and this is not the last of them."

Looking back at current situation with Baker Tilly and RSM Tenon Jenner said it’s important to remember that "for now this is all speculations".Baker Tilly UK has under City rules until 22 August to make a decision on whether or not it is to buy the firm.

The RSM international network declined to comment on the implications of losing its UK member firm and about Baker Tilly’s move on the firm.

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