Headaches grow at Tenon

Link: Tenon share buyer linked to rival firm

The past fortnight has seen the resignation of the company chairman, a profits warning and the departure of chief executive Ian Buckley, the man once touted as a visionary on the brink of transforming accountancy as a business. All this has been accompanied by a huge fall in the company’s share price to an all-time low of just 6.25p last week from its high point in the middle of 2000 of 183.5p. It’s an almost catastrophic crash and prompted one of the biggest transactions in Tenon stocks when Southwind Limited, a British Virgin Islands-registered trust, bought 23 million shares.

Interesting times indeed, but where’s it all going to end? What will new chief executive Andy Raynor do? Or is there a new force about to wrest control of the company and take it on an entirely new course?

It’s worth taking a look at the company’s background before looking at its future. Tenon really was the company expected to change the face of the accountancy sector. When launched under the leadership of Ian Buckley three years ago it was with £50m of capital from the City and a pledge that Tenon would produce £6m in profit for 2001.

Then the acquisition trail began. The first was Morison Stoneham in September 2000, for £6.36m, of which £3.89m was in cash. The buying spree continued and five months later the company was looking to raise more cash to fuel the acquisition trail. Confidence was high and Buckley was willing to predict that his company would be among the top ten biggest accountancy outfits in the country within months.

But disappointment was on the way. Tenon issued a warning that it was no where near making £6m and reduced expectations by saying profits would be more like £500,000 to £1m. In fact the company scraped into that bracket by posting a £678,000 profit on turnover of £55m. The repercussions were almost immediate as finance director Jonathan Freedman quit his job.

Buckley talked up the future, though, and when interim results for six months to June 2002 were published it seemed like Tenon was back on track.

Turnover grew to £49.6m (£19.3m) and profits grew to £6.6m. Things seemed to be looking rosy.

But the share price was on a downward trend – to around 60p by the end of 2002. Even promising interims failed to stop the slippage.

A further warning came in November last year that profits for 2002 would be below market expectations at £7.6m. The company blamed market conditions.

Then trauma really set in. On 7 February chairman Eric Stobart resigned, citing pressure of other business commitments. Four days later a profits warning was issued saying that trading conditions meant that the second half of 2002 was no longer expected to be profitable. Buckley’s resignation came on the same day. It seemed the company might be in terminal meltdown. Andy Raynor, finance director, took over as CEO and Neil Johnson became the new chairman.

It was hard to keep up with developments. News groups on the internet were full of speculation and gossip, and investors began calling members of the press for the latest updates.

Speculation about problems at the company centred not just on trading conditions, but on how well the long line of acquisitions had been integrated and whether they had been bedded down into an effective single unit. Commentators were keen to point out that, without effective integration, costs were bound to climb.

However, there are clearly those who remain optimistic about the company’s future. Enter Southwind, the family investment vehicle of well-known entrepreneur Bob Morton.

The day after Buckley quit and the shares hit their all time low, Southwind stepped in and bought almost 17% of the company’s stock.

The interesting thing here is Morton. He was a partner in Morton Thornton, one of the four founding firms of competitor, and fellow listed accountancy company, Vantis.

Morton also holds a lot of chairmanships. Where Southwind takes a big chunk of the stock, Morton often turns up as chairman. This is the case at Interclub, the Harrier Group and Clarity Commerce Solutions.

Is it a modus operandi? Will Morton end up with the non-executive chairmanship of Tenon? He insists that he does not want it, even if Southwind were to nominate him. But he insists there is a bright future for listed accountancy businesses like Tenon, Vantis and Numerica. Bob Morton is an accountant, a well-known entrepreneur and he’s already had experience of one consolidator.

Could he save Tenon?

With such a low share price, Tenon is ripe for a takeover. After the recent rollercoaster ride there remain more questions than answers about Tenon, but it will be fascinating to see what happens next. A lot is riding on it.

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