Investors lose out in RSM rescue

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BELEAGUERED accountancy firm RSM Tenon is being sold to rival Baker Tilly under a rescue deal that will wipe out shareholders and leave its lender with hefty losses.

RSM – the UK’s seventh largest accountancy firm – called in administrators Deloitte, but its main trading entities were not part of the process, and were sold immediately to Baker Tilly.

The so-called pre-pack administration has helped safeguard the 2,300-strong workforce at RSM while clients and suppliers are also set to remain largely unaffected.

However, RSM has confirmed that investors will get nothing for their shares from the deal, while taxpayer-backed lender Lloyds Banking Group will also fail to recoup all of its £80.4m in loans to the group. Baker Tilly had already been in discussions with RSM about a takeover, but pulled out of the talks, while Lloyds then refused to grant a covenant waiver on the debts, dealing the final blow to the group.

Baker Tilly then moved to snap up RSM’s trading divisions following the group’s collapse into administration.

Matt Smith, joint administrator and restructuring services partner at Deloitte, said the sale to Baker Tilly “represents the best outcome for the RSM group”.

He added: “The management of the group have stabilised the business, returning it to profitability over the past 18 months and making this transaction possible to secure its future.

“In the meantime, we are working closely with the directors of the trading entities and their management and staff to continue to support the business until the sale is completed.”

The deal is expected to close within the next two weeks.

RSM was thrown into turmoil after posting hefty losses and revealing accounting irregularities last year that meant it had to restate accounts.

After admitting in 2012 that the business had “not been managed in the way it should have been”, it has since been slashing costs and seeking to reduce losses.

It has shed hundreds of its staff in an effort to save cash as it struggles under its debt pile.

Results for the half-year to December 31 showed losses narrowing to £10m from £70.6m a year earlier, but revenues came under pressure and the firm recently said turnover had not improved in the third quarter. RSM Tenon has 35 offices across the UK.

Baker Tilly has a network of 26 offices and more than 1,600 staff and over 220 partners.

Laurence Longe, Baker Tilly’s national managing partner, said: “As a people business, the key asset of RSM Tenon has always been its highly skilled and professional workforce of partners and staff. Baker Tilly and RSM Tenon are businesses of a comparable scale operating in similar markets across the UK and internationally, and so combining our strengths and skills will provide us with new opportunities for growth, as well as further strengthening and expanding our offering to the market.”

RSM Tenon has strong links with Yorkshire.

It bought Leeds-based professional services firm RSM Bentley Jennison for about £76m in 2009. Five years earlier, Bentley Jennison had merged with WBS chartered accountants, which had offices in Leeds and Harrogate.

Last year, the accountancy watchdog launched an investigation into PwC over its auditing of RSM Tenon.

Big Four professional services firm PwC, which has offices in Leeds, Hull and Sheffield, employing almost 800 people in the region, said it would “vigorously” defend its audits and other work carried out for the company.

In August 2012, The Accountancy and Actuarial Discipline Board (AADB), part of the Financial Reporting Council, confirmed it had launched an investigation into the conduct of certain members of the Institute of Chartered Accountants in England and Wales, and of PwC as auditors of RSM Tenon.

It said the scope of the investigation covered the preparation, approval and audit of the 2010 and 2011 financial statements of RSM Tenon and its subsidiary companies.

The regulator also said it was looking at RSM Tenon’s admission to the main market of the London Stock Exchange and the acquisition of RSM Bentley Jennison.

A spokesman for the FRC confirmed that this investigation was still ongoing.