The Scots are coming

When Colin Rutherford, Graeme Manson and Cahal Dowds set up their own accountancy practice in direct competition with the Big Six, they were inevitably seen as ‘young Turks’. They were all still in their twenties and aiming for a slice of the corporate finance market which the biggest firms saw as their own territory. Ten years on, Rutherford Manson Dowds has grown from three friends operating out of a basement in Edinburgh’s Alva Street, to a thirteen-partner firm with a turnover (projected for this year) of around u7m. What’s more, RMD came ninth in the Sunday Times’ league table of UK corporate finance advisers last year.

Managing partner Colin Rutherford is now spearheading an assault on the London and south-east market, but to stop RMD’s competitors in Scotland getting too complacent, the firm has just poached two key partners from Ernst & Young’s Glasgow office (Accountancy Age, 7 November). Such a rapid rise is unusual enough in the world of accountancy, and even more so in Scotland where business attitudes tend to be cautious and conservative.

While RMD has always been a general practice firm offering mainstream audit and tax advice, it has built its growth on corporate finance. And in this probably lies the secret of its success – the firm’s entrepreneur and management buyout clients, themselves battling to build a business, feel they have more in common with the partners at RMD than with the more established firms. Colin Rutherford himself has played no small part in creating that ethos. After a decade, the enthusiasm and energy he put into building up a business from scratch is still very much in evidence.

Rutherford was 27-years-old and a manager at Touche Ross when he decided there was a gap in the market which he and his friends could exploit.

He had met Cahal Dowds and Graeme Manson at Heriot-Watt University in Edinburgh. Dowds and Rutherford joined Touche Ross in Scotland, but both took the opportunity to gain experience further afield: Dowds overseas and Rutherford in Touche’s corporate finance arm in London.

Setting out the stall

‘I was quite ambitious,’ Rutherford says, ‘I thought the profession was quite sleepy within the Scottish marketplace as far as corporate finance was concerned. The small-medium sized business was to a large extent being ignored, so I thought if we set our stall out then we had a chance.’ Rutherford and Dowds brought in Graeme Manson, who had qualified with Spicer & Pegler before joining Cement Roadstone, and the three set out to win business. Rutherford is the first to admit that their approach was aggressive. He says: ‘We focused on getting onto the pitch list for MBO teams very quickly. We made ourselves available seven-days-a-week, 24-hours-a-day.’

They were fortunate in their timing. Not only was Big Bang about to shake up the corporate finance business throughout the UK, bringing in more sources of funding, but the then Big Eight firms were about to enter a round of ‘merger mania’ that, in the short term at least, was to prove distracting and damaging. This was especially true in the Scottish market where some of the mergers which appeared to make sense in London proved less popular with both clients and professional staff. It also helped that the partners gained the confidence of venture capitalist 3i, a crucial institution in the end of the market they were trying to capture.

RMD’s first client – although at the time he did not know he was the first – was Erick Davidson, now chief executive of the Tayburn Group, the biggest graphic design company in Scotland. Davidson was leading what was in effect a management buyout, acquiring the two-thirds of Tayburn owned by external shareholders. It was a ‘political’ problem as well as a technical one. Davidson remembers Rutherford’s ‘enthusiasm’ and adds: ‘He looks at the whole picture – the people, not just the financial side.’

Rutherford has little time for professionals who are not prepared to stand by their opinion – and, in his view, that includes those who seek to cap their liability in corporate finance work. He argues: ‘We would question the desire from people who have qualified as professionals to seek to cover their downside. If you put the appropriate quality of expertise on an assignment and you are charging a fee for the job, then you should be able to stand behind your opinion.’

An equally strong view of what is and what is not professional means that RMD steers well clear of insolvency and corporate recovery work.

Rutherford argues: ‘Right from the outset we thought there was a degree of conflict between recovery and insolvency work and corporate finance.

A lot of accountants in the mid-1980s were converting investigation jobs into prospective insolvency work. We stayed clear and that helped us to gain the confidence of some of the clearing banks.’

Expanding practice

Fees for RMD now split almost evenly between corporate finance, tax and audit work. The firm employs over 150 people and, when Andy Allan and Aidan O’Carroll join from Ernst & Young, there will be 15 partners. From its Edinburgh basement, the firm has branched out to offices in Glasgow, Aberdeen (where, despite a recession in the oil and gas industry at the time, RMD’s partner Colin Welsh has carved out a strong market niche) and now London. Rutherford will soon be spending most of his time in the latter and hopes that London and the south-east will account for around 20% of the firms’ fees next year.

Are the iconoclasts of 1986 now settled down as part of the Establishment?

Rutherford concedes: ‘Ten years on, the firm has lost part of the “young Turk” identity…but I’m only 37 and it’s a more mature dynamism.’

Certainly, the founding partners are now recognised faces in the business community in Scotland. Cahal Dowds is a council member with the Scots ICA and RMD technical partner Steven Cowie was co-opted onto the institute’s accounting standards committee. The firm has become a sponsor for sport in Scotland, including Selkirk and Royal High rugby clubs and the athlete Liz McColgan. Rutherford himself is a member of the Young Presidents, an international organisation for young chief executives.

At the outset, Rutherford says, there was a degree of cynicism from some of the competition many of whom may well have hoped that the newcomers would fail or be ‘found out’. Since then, success has meant the inevitable soundings-out from a variety of firms looking for a merger partner. So far, their blandishments have been resisted. Rutherford says: ‘We set our stall out to be independent. There’s never a ‘merger’ – it’s a disposal or an acquisition. I think as individuals we would have difficulty in ever being comfortable with disposing of the firm.’

Never say never

Rutherford is careful to add ‘We always say to everybody “never say never.”‘ But if the firm takes a new direction it would be more likely, Rutherford suggests, to become more of a specialist corporate finance entity – possibly even incorporated – than to be submerged as part of a bigger accountancy firm. Corporate finance house Hambro Magan (recently taken over by National Westminster Bank) is one model Rutherford points to – indeed, he has recruited from there to help build RMD’s London operation.

To those who harbour similar ambitions to break away and set up for themselves, Rutherford advises: ‘Identify some niche activity where you have an expertise.

Work hard at creating the opportunity to develop that expertise. You have to offer some kind of differentiation, some kind of competitive advantage.

It’s not easy and there are a lot of barriers, but if you’ve got that competitive feeling in your stomach then you push yourself to get out there and win that work.’

Also crucial is the ability to communicate and ‘convince people you are something special’, Rutherford says and crucially, don’t try and do it alone: ‘We started with three individuals and that was an invaluable thing.

It gave us a spread of responsibilities.’

When the London office is running smoothly, one of Rutherford’s main ambitions is to spend more time with his wife and young daughter. Meantime, as a Scot, he has mixed feelings about the time he will be spending down in the south-east. He is in no doubt as to where the better quality of life lies. Salmon fishing is his passion and he is a keen supporter of Hibernian FC. Like his co-founders, he takes sport seriously – all of them are former rugby players and they still play five-a-side soccer.

He is equally patriotic when it comes to professional matters, and strongly supports continuing independence for the Scots ICA.

The symbol chosen for RMD is a chess piece – a knight. It is an appropriate image in more ways than one. It is clearly a reference to the ‘white knight’ of corporate finance – and the knight in chess is the only piece which is able to jump over its opponents. Similarly, it is a safe bet that Colin Rutherford has not yet lost the capacity to surprise the opposition.

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