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December 22, 2009

Tenon and RSM Bentley Jennison to form UK’s seventh-largest firm

Andy Raynor and Tony StockdaleTenon Group is to acquire RSM Bentley Jennison in a merger
that will create the seventh-largest firm in the UK.

The boards of both firms have agreed to the
combination, which must be approved by shareholders at an
extraordinary general meeting on 29 December. RSM Tenon will have
3,000 staff and generate annual fee income of £250 million ($409
million).

The firm would leapfrog Baker Tilly, which
reported fee income of £204 million in the year to 31 March
2009.

Tenon Group chief executive Andy Raynor will
lead the combined entity, while RSM Bentley Jennison national
managing partner Tony Stockdale will join the board as well as
represent the firm on the RSM International board.

“This deal is a combination of the two most
substantial entrepreneurial businesses in our industry. It is the
beginning of a new era of opportunity and growth for our teams and
provides us with an excellent platform from which to challenge
traditional approaches to client focus and service delivery,”
Raynor said.

Stockdale told the International
Accounting Bulletin
the strength of Tenon’s corporate recovery
practice combined with RSM Bentley Jennison’s niche risk management
business made the merger a perfect match.

“There is a very strong commonality in terms
of what we are seeking to do in the marketplace. Our core audit and
tax businesses target the same market, principally the SME and
mid-market,” Stockdale added. “In addition, we have some wonderful
specialist services, Tenon’s corporate recovery business and our
risk management business. While there is no overlap there, by
putting those two businesses together we’ll have an even stronger
range of services to go out to the market with.”

Tenon’s corporate recovery business grew 41
percent to £41 million in the year to 30 June 2009. This was the
firm’s star performing business line. The firm reported revenue of
about £151 million, which included an underlying profit increase of
8 percent on its previous year.

RSM Bentley Jennison has been one of the
fastest growing mid-tier firms in the UK over the past few years.
The firm reported annual fee income of £80.3 million in the year to
30 June 2009 and the firm’s 12 percent growth rate is the highest
among mid-tier firms (see UK survey: A slow grind). RSM Bentley
Jennison has doubled in size every four years since its foundation
in Birmingham in 1984.

Stockdale said there will be a review of which
business areas might overlap but stressed this does not mean job
cuts. He said the main reason for the merger was to provide both
entities with a greater platform for growth, which should lead to
recruitment.

“Clearly, when putting two large businesses
together one needs to look very carefully at what we have and how
that should be most properly structured for the future. Obviously
that will be done over the course of the next 12 months,” Stockdale
said. “But the real point here is the reason we are putting these
two businesses together is the platform it gives for growing the
businesses in a better and stronger fashion going forward.

“If you look back over the last five to six
years, both businesses have achieved pretty substantial growth and
we expect that growth to increase. In terms of jobs, clearly if we
are going to grow the business we will need more people rather than
less people.”

International Accounting Bulletin
understands Tenon intends to raise £40 million for the acquisition
through a new share offer. The company has also arranged new
banking facilities to help fund the deal.

Stockdale confirmed £40 million will be paid
to Bentley Jennison, which could be shared among equity partners.
Partners will also receive £17.5 million in RSM Tenon shares and
another £18 million could be payable over three years on a
performance basis.

Tenon is still officially a member of the
multi-disciplinary association Morison International, but would
join RSM International once the merger ink dries.

RSM International chief executive Jean
Stephens told the International Accounting Bulletin the
merger caps off a good year for the network, which has grown its
presence in Poland, Ireland, Japan and Saudi Arabia.

“This brings an expanded team with expanded
capabilities,” Stephens said. “Of course [increased] size, if you
use it right, opens up opportunities and then it’s about serving
those clients and going after those internationally. In the UK, we
will have a bigger base to start from so then we can go after
larger companies together.”

Morison International chief executive Liza
Robbins said if the merger does go through the association would be
seeking to replace Tenon with a quality UK firm.

“The actual impact on our resources is quite
insignificant. We have exceptionally good reserves and we had a
great year this year,” Robbins said. “But we do need to prioritise
the finding of a new UK member firm. Tenon are very good and we
will be getting a message out to our clients that it is business as
usual. I don’t think there is a concern [referral work could
suffer] and both parties will act sensibly.”

Robbins described Tenon’s acquisition of RSM
Bentley Jennison as a “commercial reality” for a firm as large and
reputable as the UK consolidator.

UK TOP 10

This table illustrates the 10
largest UK firms once the dust settles on the Tenon Group and
Bentley Jennison combination.

Rank

 

Fee income (£m)

1

PricewaterhouseCoopers

1,981.0

2

Deloitte

1,969.0

3

KPMG

1,626.0

4

Ernst & Young

1,383.0

5

Grant Thornton UK

378.1

6

BDO

335.1

7

RSM Tenon

250.0

8

Baker Tilly

204.0

9

Smith & Williamson/Nexia
International

189.3

10

PKF UK

141.3

Source: International Accounting
Bulletin

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