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August 22, 2013

RSM Tenon sold to Baker Tilly UK in pre-pack

Baker Tilly UK has bought RSM Tenon as part of a pre-pack deal with administrators Deloitte UK following a month of speculation over the future of the troubled firm.

When earlier today Baker Tilly UK decided not to make an offer on RSM Tenon’s share capital RSM Tenon’s creditor Lloyds Banking Group decided it would not be willing to grant a covenant waiver.

This led to RSM Tenon’s board of directors to appoint Deloitte UK as administrators as the firm failed "to meet its liabilities as they fall due".

Immediately following the administrators’ appointment a sale of RSM Tenon Group trading entities to Baker Tilly UK was agreed.

"The sale is expected to complete within two weeks, following regulatory and shareholder approval," according to a statement by RSM Tenon.

Kato Consultancy co-founder Andrew Jenner told International Accounting Bulletin that by buying RSM Tenon as part of a pre-pack deal Baker Tilly UK managed to acquire the business "without having to go through the formality of the offer process" and only acquire the business without its liabilities, which sit under RSM Tenon plc.

Baker Tilly UK explained in a statement that this transaction "allows for the ongoing success of RSM’s Tenon’s profitable trading businesses, free from the burden of the group’s historic debt obligations, as part of an enlarged and financially strong Baker Tilly group. We believe that this is an excellent outcome for RSM Tenon’s clients and employees, allowing for enhanced service excellence and career development opportunities.

"Although the parent company of the RSM Tenon group is now in administration, we have acquired the profitable trading subsidiaries as going concerns. They will continue to operate as normal providing high-quality audit, accounting and other professional services to their many valued clients in both the public and private sectors around the UK and internationally."

While the transaction is good news for RSM Tenon’s staff, shareholders are unlikely to see a return on their investment and Lloyds Banking Group is unlikely to recover its entire £80.4m net borrowing.

By buying RSM Tenon, Baker Tilly UK will probably more than double its existing fee income and staff count. According to the IAB’s latest UK survey Baker Tilly UK reported fee income of £170.4m, for the year to 31 March 2012 and RSM Tenon £231.5m in the year to 30 June.

With the deal Baker Tilly is likely to report fee income of about £400m, which would put it into the race for the largest mid-tier network spot in the UK. Grant Thornton UK currently holds that position with fee income of £417.1m in 2012; however since BDO UK has almost doubled in size by merging with PKF UK earlier in the year the gap has closed between the two. In 2013, BDO UK’s fee income is expected to be between £370m and £400m. If Baker Tilly hadn’t made its move on RSM Tenon the gap between itself and BDO UK and Grant Thornton would have been more than £200m in fees, which would have put it at a significant disadvantage.

The deal leaves RSM in search of a new UK member firm. As the seventh-largest global accounting network it has little time to waste to secure a replacement, which is likely to smaller than RSM Tenon.

RSM said in a statement that during this period of transition, it will be business as usual with RSM Tenon, and no decisions in relation to RSM representation in the UK have yet been taken.

RSM chief executive Jean Stephens said: "We will take this opportunity to explore alloptions and to ensure our positioning in the UK continues to be strong, dynamic and a good fit for RSM International. The UK is a strategic market for our network and our international clients and will continue to be of the utmost importance. RSM International is built on strong foundations and close relationships and we will leverage these strengths and use this opportunity to the advantage of all our clients, stakeholders and people."

Jenner is certain will soon find another partner in the UK. "RSM International will be looking for a replacement and there will be a sufficient number of UK practices, which will be looking for a strong tie-up with a strong international network.

"I could think of two or three that are looking at doing something. They are not firms as big as RSM Tenon, but they would be among the top 100 firms in the UK. PKF International, which lost its UK member to BDO UK has, for example, had to settle for a much smaller firm, PKF Littlejohn, as its representative in the UK.

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