Consolidation the spur to revive Tenon bidding

It has been almost five months since Tenon announced that chief executive
Andy Raynor was leading a management buy-out bid for the firm, but interest in
the business has ground to a halt since then.

The pressing need for consolidation in the mid-tier, however, could reignite
interest in Tenon.

Jeremy Newman, managing partner of BDO Stoy Hayward, said there were definite
drivers for mid-tier consolidation, particularly at the smaller end of the scale
where firms needed to build capacity.

‘There is a real opportunity to take advantage of the demand for more choice
in the accounting market, but in order to serve that market, firms do need to
develop a certain critical mass,’ Newman said. ‘Apart from ourselves and Grant
Thornton there are not many firms that have that critical mass, so the case for
consolidation is strong.’

Newman’s support for consolidation couldn’t have come at a better time for
Tenon. Since the MBO bid came to light, Tenon’s stock has dropped 31.6% and a
spokesman for the firm admitted that progress had not been as swift as hoped.

But the revived interest in consolidation may help to salvage the situation
for Tenon as mid-tier players look for acquisitions to grow revenues and
increase their scale.

One of the main players that could be interested in Tenon or another mid-term
firm is RSM Robson Rhodes. The firm’s managing partner Sukhbinder Heer recently
stepped down after 23 years and the firm will now need to look for new ways to
move forward and achieve its forecasts.

In 2003, RSM Robson Rhodes said it planned to generate revenues of £200m by
2007. The firm is currently earning revenues of £85.5m and will have to make
acquisitions if it is to meet its target. Acquiring Tenon, which has revenues of
£95m, would help the firm to achieve its revenue goal.

Despite the case for consolidation, KBC Peel Hunt analyst Andrew
Shepherd-Barron remained sceptical of Tenon’s ability to attract a buyer. ‘I
can’t see a third party buying Tenon with the debt it’s carrying,’
Shepherd-Barron said.

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