There's been little M&A activity for years and then two come along at once
IT’S BEEN YEARSsince mergers and acquisitions of note have hit accountancy headlines. Then two come along at once. We have seen BDO amalgamate PKF into its brand and now, RSM Tenon has been sold to Baker Tilly.
Although RSM Tenon and Baker Tilly were open about their discussions (mainly due to the former being listed), I wrote earlier this month my prediction that a pre-pack might be on the cards. With the secured debt at RSM Tenon, estimated to be in the region of £88m, attached to the parent company; but the trading business has no debt but all the clients and working capital – why not buy just the trading business? The only way to separate the two would have been through an insolvency of some description.
The writing was on the wall for RSM Tenon back in January last year, when the firm had to restate its accounts showing that revenues would be 10% lower than expected, for the six months ending December 2011. It has been unable to rearrange its banking arrangements and was heading towards breaching its bankng covenants.
The listed business reported a loss on continuing operations of £71m after being stung by a goodwill charge of £60.7m. However, the firm did well not to collapse immediately following the discovery of an accounts black-hole. For example, listed Black Cab maker Manganese Bronze discovered a £3.9m black-hole in August 2012 only for the company to enter into administration just two months later in October, which was sold to Geely UK in February.
To keep the clients happy enough to stay and the business attractive enough for a buyer more than a year later is no easy feat. However, it will be interesting to see what response the rest of the accountancy market will have to the two new super powers and how Baker Tilly will begin the task of amalgamating RSM Tenon.
Rachael Singh is senior reporter for Accountancy Age and Financial Director