Baker Tilly is not concerned about losses that were recorded by accountancy and support services RSM Tenon prior to its takeover of the firm, which completed this week, stating that the reduction in the debt pile resulting from the transaction will ensure ongoing profitability.
Baker Tilly acquired RSM Tenon on 22 August after backing out of a previous deal for the firm. After the first deal fell through, RSM Tenon went into administration and Lloyds was forced to admit it will not recover in full the £80m in debt owed by the company.
Regarding the less-than-stellar results posted by RSM Tenon before the acquisition - it posted a loss of £88.7m last year - Baker Tilly managing partner Laurence Longe said the company was not “generating enough cash to write down debt” but that on a “standalone basis” it remained profitable.
He said: “Largely it was one-off items in their accounts. They were paying a very heavy burden due to the [£80m] debt. They simply weren’t generating enough cash to write down debt.
“On a standalone basis the business is profitable. The business could have continued but it couldn’t pay off the level of debt it had.”
More generally, the acquisition of RSM Tenon the emergence of the “middle three” accounting firms including Baker Tilly alongside Grant Thorton and BDO, Mr Longe said.
He said: “People are used to the ‘big four’ [PricewaterhouseCoopers, Deloitte, Ernst and Young, KPMG], and what we have seen begin to appear more is the emergence of the ‘middle three’.”
According to Mr Longe, in 2007 Grant Thornton was pulling in about £315m in revenue while BDO was making £307m and Baker Tilly was making £189m.
In 2013, he claims Grant Thornton and BDO were creating revenue of £460m and £380m respectively. Including this summer’s acquisition, Baker Tilly will now boast revenue of about £350m.
He added that RSM Tenon makes up half of the rough 85 per cent growth the company has experienced.
Mr Longe told FTAdviser that buying a company in administration was a totally different proposition, but he did not go so far as to say the firm planned to let RSM Tenon go into administration and forfeit its debt before buying it.
“We had to make a decision: Were we going to proceed with the public offering and effectively there was too much uncertainty and we ran out of time.
“It is a different transaction then because we are actually acquiring the company from the administrator which was Deloitte. There are some attractions to a solvent transaction rather than an insolvent one.”
Following the acquisition, Baker Tilly has said it intends to keep all RSM Tenon employees on staff and to fold the company under its parent brand as painlessly as possible.
