The Debate: Is the consolidator model still valid?

Bright future for consolidation

By Andy Raynor

Our people joined Tenon with clear objectives – to lead an athletic national business ready and able to compete against the best. There should have been no doubt we could do it.

Nine months ago, we set about redefining the success criteria of a publicly quoted accountancy practice, retracing vital steps. Putting the best management from the acquired businesses in charge looked like a good start, and so it has proved.

We have a revitalised, profit-led business with its own strategies, delaying nothing in management or for the future. We have a clear view of the next moves and how to take them.

No business is a cakewalk, but just when we have got it right, along comes the next round of speculation about our particular niche.

We are ahead of that.

Properly, ‘consolidation’ needs to be considered in the context of business objectives. Is it the be-all and end-all, or is it a means to an end?

The difference is stark. A concept that comes to the market must acquire to create critical mass. It should then pause, bring together its businesses, apply the best management and realise synergies and potential and complementary growth. Acquisitive consolidation got the business there, but it may not be a perpetual state.

Such a business – and we are – will have achieved its first goal and will choose in future how to expand. That is not solely through continuing ‘consolidation’. I look around our group at abundant opportunities that it would be rude not to grasp.

Those who would like to test the future for accountancy on the public markets should raise their game. Comparison between a small population of young listed businesses is a serious error if it leads to conclusions on the market as a whole.

Our people take their lead from highly successful people – business professionals thriving on the markets. Commentators should work harder, as we do, to realise what the future potential of accountants should be.

For my money – literally – this is one of the most exciting places in business to be.

• Andy Raynor is the chief executive of Tenon

STOCK OPTION IS IN THE BALANCE
By Damian Wild

‘The problems of UK small CPA firms are similar to those of Australian firms, especially the problem of fragmentation,’ says Australian accountancy commentator Tony Thomas.

‘Britain has 20,000 practices – half as many as the US – yet Britain’s population is only a fifth that of America. Other problems include demanding clients, complex legislative changes, pricing pressure on compliance work, and the need to spend large sums on IT.’ Thomas was writing back in 2000, not long after Tenon floated and effectively launched the consolidator model in the UK. And his point was that the consolidator model, pioneeered in the US, was taking hold globally. But reviewing Thomas’ words now, you could easily be forgiven for thinking that he was writing last week – and that his point was the opposite of what he intended.

With the news that Numerica was in talks with BDO Stoy Hayward and is now talking to Robson Rhodes, tough questions are being asked of the consolidator model in the UK. Demanding clients, legislative change and pricing pressure has seen to that. But market demands have been tough.

Numerica, Tenon and Vantis also launched at a difficult time. Share prices were sliding and partners in their component firms have seen the value of their stock options decline.

It is important to ask whether the disciplines of the stock exchange are right for accountants. What about structures? Can external responsibilities and accountabilities be married to the inward-looking structures of accountancy firms? And are organisations equipped to manage debt?

The truth is that the Numerica question fails to resolve any of these issues. Numerica’s possible exit from the market is a company issue and not necessarily a sectoral one.

Tenon is also having problems. Like Numerica, its share price is depressed.

But it is saddled with debt, Numerica is not. The fact that tough questions are legitimately being asked does not signal the end of the model. Yet no one should assume that it is necessarily here to stay, either.

• Damian Wild is the editor of Accountancy Age