FALLING PROFITS, partners heading out the door and uncertainty over its name, life post-RSM Tenon has hardly been a bed of roses for Baker Tilly. But, says managing partner Laurence Longe, the firm has achieved more than should have been expected in the 12 months since it completed its merger with its stricken rival.
Since acquiring RSM Tenon through a pre-pack administration in September last year, the ensuing months have been a busy – critics would say turbulent – time for Baker Tilly. The firm, which paid £30m for RSM Tenon’s trading operations, is set to leave its eponymously-titled network to join RSM International, which will bolster its presence in the US, has rationalised its national network of offices and sold off non-core assets. At the same time, profits have halved and some notable figures have left the firm.
Despite the bumps along the way, Longe is largely satisfied with the progress Baker Tilly has made integrating Tenon. “From a timing point of view we are only one year on from actually completing the transaction. We have achieved far more because everyone has worked together,” Longe tells Accountancy Age.
According to Longe, it was “critical” for the physical integration – people, property and back office functions – to take place quickly. In February, 300 staff and partners at RSM Tenon moved across to Baker Tilly’s Farringdon practice, while offices in Manchester, Birmingham, Milton Keynes, Basingstoke, Birmingham, Leeds, Stoke, Edinburg and Glasgow have, or are in the process of being merged.
That integration process has resulted in around 2,500 people moving offices, with close to two-thirds of the combined entity’s staff and partners having completed the process. By the end of the financial year, £70m of cost had been taken out of Baker Tilly’s structure as a result the rationalisation programme.
“The critical thing in any merger is bringing the physical aspects together as quickly as possible. It creates a platform,” explains Longe. “It’s about each location having sufficient strength in depth where we want to operate. Tenon was already going through a rationalisation programme and we sped up the process.”
Parting with partners
Longe is naturally keen to emphasise the positives Baker Tilly has reaped since the merger, such as its increased scale and resource. “All our key revenue streams have significantly increased in scale. All have greater resources brought to bear in the market,” he says. At the same time the firm has “greatly strengthened” its regional offering in Scotland, the north-west, north-east and midlands.
In August, Baker Tilly completed a merger with Aberdeen-based accountants Simpson Forsyth. The merger adds Aberdeen to the firm’s Scottish presence, with offices in Edinburgh, Glasgow, Grangemouth and Lerwick. The deal also goes someway in offsetting the loss of eight partners from RSM Tenon’s former Edinburgh office to Mazars in October last year. Six partners had previously left Tenon’s old regional operations in and around the east Midland’s to join Mazars.
And it is the loss of partners during such big merger deals that is always the toughest thing to control. In September, Accountancy Age revealed that the firm’s former chief operating officer, Jon Randall, joined Moore Stephens along with three fellow Baker Tilly tax partners, while the firm lost yet another member of its restructuring team to Quantuma that month.
Insolvency practitioner Richard Easterby left the firm to join Quantuma, the insolvency practice launched in January 2013 by former RSM Tenon head of restructuring Carl Jackson. Easterby recently joined former Baker Tilly restructuring partner Simon Bonney and former Baker Tilly consultant Andrew Hosking, who moved to Quantuma in April.
Indeed, according the latest Accountancy Age Top 50+50, Baker Tilly now has 111 ‘partners’. Last year, it had 107, while RSM Tenon declared 219. So where have all the partners gone? However, the numbers are slightly misleading and the situation is far from as dire as it might appear, Longe suggests.
In the 2013/14 financial year, Baker Tilly had 207 partners (97 national and 110 regional), whereas RSM Tenon had 219 employees who had the title of partner, but as a listed company they were classified as directors.
According to Baker Tilly, it now has 323 partners (130 national and 193 regional). While a reduction of 103 from last year’s combined partner totals, Baker Tilly says that some of RSM Tenon’s directors are still with the business but don’t hold partner status in the new organisation. In other words, the status change of some makes it difficult to gauge how many have left preceding, and following, the deal.
“Clearly, some partners in any merger where the vast majority of people join through the merger will decide it’s not for them,” Longe says.
Reorganisation and divestment
According to its latest annual results – figures for the year ending March 2014 have yet to be filed – pre-tax profit for the year ended March 2013 fell to £7.2m from £15.8m. The firm blamed ‘low-balling’ pricing competition as one of the factors behind the £8.6m reduction in profits.
Numbers provided to Accountancy Age for the year to March 2014 show a 51% increase in UK fee income to £246m as the firm benefits from the inclusion of RSM Tenon’s numbers. Audit income rose 35% to £107m, the firm’s tax line grew 33% to £64m and consultancy brought in £15m. And while no figure was given for profit for the period, Long is optimistic about future the firm’s global opportunities following the decision to join RSM International.
One of the clear benefits for Baker Tilly is the network’s strength in the US, which will lead to greater referral work for the firm. “One of the main differences is Baker Tilly International is represented by some 13 members in the US, whereas RSM has a single, major firm,” Longe explains.
The tie up between the firm and network will likely have caused consternation at Baker Tilly International, which must now find a new UK member firm. At the same time uncertainty swirls around whether Baker Tilly the firm or Baker Tilly the network will retain the branding – a subject Longe won’t be drawn on, though he concedes a decision will be forthcoming by the end of the year,
Naming rights aside, Baker Tilly has largely completed much of the integration of Tenon including the disposal of non-core assets such as its employee benefits business sold to insurance broker Arthur J Gallagher in July. The sale of the business, previously owned by RSM Tenon, follows the disposal of Baker Tilly’s private client financial advice business to Towry in June and completes the sale of the financial management business.
“This sale completes our reorganisation and divestment of the financial management business owned by RSM Tenon,” Longe says. “Once completed, this will enable us to focus on our core markets and key areas of growth both nationally and internationally.”
Baker Tilly in numbers
Accountancy Age 2014 Top 50+50 ranking: 7
UK fee income: £246m
Percentage change: 51%
UK offices: 33
Fees per partner: £2.2m
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