THE FINANCIALLY WOUNDED RSM Tenon is be nursed back to health - but things will never be the same again, admits Baker Tilly's managing partner Laurence Longe (pictured).
Although Longe is quick to point out that the firm does not envisage mass redundancies and hopes to keep deals in place, and staff on board, there will inevitably be some losers in the restructuring and merging of the firms.
"Inevitably there will be doubles in some offices or functions but we hope to re-deploy people," he says.
The firm is keen to assure all that it is business as usual, even going so far as to remain in both the Baker Tilly and RSM international networks until more decisions about the unified firm can be made.
"We will continue to be members of both networks, RSM International and Baker Tilly International.... Obviously there will be some complication but no decision on that has been made yet," he says.
"The international aspect of the firm is very important and we will give it proper consideration," he adds.
Longe claims that the networks are very different to each other, with different strengths and weaknesses in different regions. As an example, he explains that RSM Tenon is strong in North America, where Baker Tilly is weaker. "In time we'll make those judgements on the networks. But the priority is to bring together the UK firms," he says.
Unlike the recent merger of firms BDO and PKF (which had two PKF partners and five BDO partners on the leadership board) the integration team at Baker Tilly will be an even mixture. It will be made up of four partners from Baker Tilly and four from RSM Tenon.
"In the short-run the operating board and management board will have both firms represented." However, the clocking looks to be ticking on RSM Tenon CEO Chris Merry, who will stay on for a "couple of months for the integration", says Longe. That isn't to denigrate Merry's work with the business, with Longe pointing out that under his leadership RSM Tenon is now profitable - putting to one side the historical debt.
RSM Tenon currently has 35 offices while Baker Tilly has 26. There are 12 locations where the offices overlap with each other: Baskingstoke, Birmingham, Chelmsford, Edinburgh, Glasgow, Hull, Leeds, Manchester, Milton Keynes, Stoke and Watford.
Although there is overlap in London, employees at that RSM Tenon office were to be moved due to refurbishment of the local area next year. The issue will now be: which offices that overlap are leasehold and which freehold, in order to determine how easy or difficult it will be to amalgamate the teams in those regions.
Longe hints that London will be the priority. He hopes to have that office arranged in the next six months without affecting client services.
Longe is a veteran in mergers and acquisitions at Baker Tilly, undergoing the process on several occassions in the last 15 years. "We've done five national mergers, so we have a great deal of experience. We know that it takes time, re-organisation. That's the plan for next few months," he says.
Most notable was the HLB Kidson merger in 2002, which Longe said took nearly seven years to fully integrate - taking into account staff practices and culture. Prior to that, Baker Tilly were essentially a London and South East firm, with Kidsons having operations across the UK.
That experience has put Baker Tilly and Longe, who headed up that merger, on a better footing than most to take on RSM Tenon. However, he points out that this amalgamation of firms could take up to two years just wading through all the complications such as the closure of offices, redeployment of staff and international network.
There is also another disadvantage in this acquisition, unlike many other mergers, in that the intricacies of the deal can start as far back as a year before a sale actually happens. In this scenario redundancies are arranged, office moves/closures are organised and the details are waded through. When the sale is announced the business has a clear idea of what they want, what they plan to do and then it is a case of going through it, which is in itself a lengthy process.
However, in an administration, and a rapid turnaround one such as a pre-pack, this cannot be the case. "In a traditional merger, you have a period of time to plan, you don't get that with a public company or a pre-pack administration" he says.
Everything is at a quicker pace and you have to take on the business and work through all the different aspects later, he explains.
Blast from the past
The acquisition has seen Baker Tilly pulled back into the financial services sector. Back in 2007 Baker Tilly sold its financial services arm to wealth management company Towry for an undisclosed sum. At the time of the sale, it was estimated that Baker Tilly had a national presence with more than 20,000 high net-worth clients.
RSM Tenon has a strong presence in this field, which forms a substantial part of its fee income. However, Longe is quick to point out the firm hasn't decided to offload or to keep the RSM Tenon financial services division.
"We have an open mind about that. In 2007 we had to make the decision to stay or go in financial services. We had to make the strategic decision to invest or divest, to consider whether we wanted it to be core or not," he says.
"We haven't made a decision yet about the future of the division that has come over from RSM Tenon. It is the one service that's different, what they call financial management".
However, "some service lines which we didn't have before will add to ours," says Longe. "We have to think about how to integrate them."
Although guarantees can't be extended to staff, Longe is quick to ensure that it is not the intention of the firm to hack away the various parts of the firm or make large scale redundancies.
As to illustrate, he points out that a deal struck up between RSM Tenon and the former RSM Bentley Jennison partners, in which RSM agreed to pay a total of £9.9m, would be honoured by Baker Tilly.
RSM Tenon said in its results for the six months ended 31 December 2012 that it had paid about £1.2m to the Bentley Jennison partners out of £9.9m owed. It added that it was likely the firm would repay a further £6.8m by September 2015.
"We are honouring the RSM Bentley Jennison commitments," Longe says resoundingly.
The future is bright
Longe points out that the future generations of the firm are being taken into serious consideration during the process. The day after RSM Tenon's pre-pack announcement RSM Tenon CEO Chris Merry gave a presentation to 99 graduates, explains Longe. Baker Tilly will take on those 99 graduates promised a role by RSM Tenon and are now part of the 170 graduates at the two firms combined.
The profession is taking its latest evoutionary step, explains Longe. The emergence of a new set of firms making up the Middle Three has now taken place. The recent flurry of acquisitions has seen Grant Thorton, BDO and now Baker Tilly rocket ahead of the next tier of firms below them in the Accountancy Age Top 50 table.
"Because of the market consolidation you have the Big Four, "now we have the Middle Three", he said.
The smallest of the Big Four sees EY with £1.6bn in fee income in the latest Accountancy Age Top 50 table. Its closest rival Grant Thornton has a fee income of £460m, highlighting the huge difference between the firms.
BDO's acquisition of PKF, earlier this year, will see firm's 2012 combined fee income at £384.8m, while Baker Tilly and RSM Tenon's 2012 figures added together will give them a combined fee income of £378m.
Firms need the scale if they want to compete to provide client services, explains Longe. "Size is a necessary condition. You have to be a certain scale of operations," he says.
But does size matter, and has Baker Tilly bitten off more than it can chew? It could take years for the firm to realise what they want, don't want and how difficult and complex the actual integration really is. You can only hope that the 17 years experience as managing partner has given Laurence Longe a strong constititution.
Not sure if they have bitten off more than they can chew but it sounds like they could suffer from indigestion for many, many years to come! It is interesting to see them refer back to a merger 11 years ago which they admit took 7 years to complete as a good example of why this one will be a success! I believe BDO had completed the majority of the integration of PKF within 100 days. I think Baker Tilly are trying to talk themselves and others into the belief that they are now on the same level as BDO and GT, but judging things on turnover is a dangerous game. A pound of fat vs a pound of muscle gives very different results!
We also have yet to see how much of RSMT they manage to hold on to as no doubt we will see some partners slip away through their fingers...
Posted by: Nora, 10 Sep 2013 | 22:50
I agree with Nora's comment on silly ambition of BT. It is a firm which needs a large investment by its mom and pop store mentality partners. However, I strongly disagree with Nora on her notion of calling BDO and GT as muscle. These two firms are light years away of matching big four and although, they very much would like to believe that they are almost there.
Posted by: Naveed, 09 Oct 2013 | 15:33
Naveed, my fat v muscle analogy was relative. I wasn't trying to say BDO/GT were on the same level as the Big 4. My point was that Baker Tilly are the ones shouting 'look, we're as tall as the big boys now' whereas in fact they have just stepped up onto a rickety old box. None of this alleged 'mid tier' are as tall as the big 4 men.
Posted by: Nora, 10 Oct 2013 | 20:43
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