It'll never work. That is what critics said in the beginning and that is what some are still saying now. But Ian Buckley, chief executive of Tenon Group plc, is determined to prove them wrong and is already well on the way to doing just that.
The cunning plan was hatched less than two years ago. Consolidator Raphael Zorn Hemsley (RZH) realised that if mid-tier firms want a long-term future, they need access to capital for investment. But with the partnership structure of traditional accountancy practices, raising funds is no easy task. Thus the idea of Tenon was born - to set up a group to consolidate the accountancy sector.
And it was just that, an idea, that RZH floated on the Alternative Investment Market (AIM) in March last year, raising £50m for the company's fund. The move catapulted the company not only into the headlines, but into view as a major future force in the accounting world. From a starting point of nothing, Tenon has since successfully acquired nine quality mid-tier accountancy firms and launched a start-up, bringing its total expenditure so far to over £100m and its ranking to 15th (accountancy services firm by turnover) in the UK.
Buckley is the man responsible for spearheading Tenon's campaign from the beginning, and despite a very hectic 18 months, he has no intention of slowing down.Appetite for challenge
From early on in his career, Buckley seems to have had an appetite for challenge. After completing a degree in economics, accountancy and law at Southampton University, his first job was with Peat Marwick Mitchell (now KPMG), where he qualified first time. Ten years later he went to Smith & Williamson, where he was responsible for starting the corporate finance department.
In 1984, 'at the age of 34, I was asked to be the first group managing director there had ever been. I did that job until 1995, at which point, after 10 years there, I thought it was time for a change.' So Buckley moved to the Private Bank and Trust, now known as EFG, as chief executive.
In 1998 he got itchy feet again, and left the bank. Over the following 18 months his work involved consultancy and advisory roles, with two large international banks among his clients. And then RZH came knocking.
'I was headhunted in October 1999 and I thought about this idea for several months - the Tenon concept. I said yes in November 1999 - let's do it. I worked full time between the end of November and the end of March without being paid because there was no money - until the successful fundraising, and there was £50m in the bank at the end of the month.'Wide range
The aim is to create a firm that can offer expertise in a range of financial services nationwide. RZH took the inspiration for Tenon from the Big Five. 'The driver behind this, the whole market analysis, is what the Big Five firms of accountants have done over the last few years,' Buckley says. 'They have become immensely successful for two reasons. One is that they have become multi-national players, large corporates throughout the world. Of course in the meantime, they are leaving market share to the smaller businesses that can provide a quality service to other companies that fall below their radar screens.
'The other thing the Big Five have done is to reduce their reliance on lower margin work. They were able to develop other financial services, but they did that with access to capital to invest. It is extremely difficult for a medium-sized accountancy firm to release sufficient capital to invest in other areas, be it corporate finance, IT - you can't make that level of investment if there is no capital, with the partnership structure. That is the driver and all these practices know they need to do this in order to satisfy their clients.'
The difference between Tenon and other mid-tier accountancy firms is the fact that without a partnership structure, Tenon will have much easier and faster access to capital, allowing it to expand into a wide variety of areas and invest in the future. 'I see the future of Tenon as being in consultancy, corporate finance, financial services - general financial advice and services to corporate clients,' Buckley explains. 'IT will have an impact, HR will have an impact - we will look at the various services we can bring in. It is increasingly a one-stop.'
As it is not a registered audit practice, Tenon cannot legally purchase the audit arms of the firms it acquires. Hence the existence of Blueprint, which has acquired all the audit arms of the firms Tenon has acquired. 'It is a separate company in terms of ownership, but in practice, the audit people who are employed by Blueprint are also employed by Tenon. All the extra services that Blueprint needs are supplied by Tenon.'
Buckley claims it is the only dedicated audit practice in the UK, and believes it will be a significant player in the future. However, he insists that the audit operations will have a 'proper arm's length relationship' with Tenon.Spending spree
By March 2000, Buckley and fellow Tenon promoters had succeeded in convincing many leading City institutions to buy into the idea, before floating on AIM. 'The initial raising of capital, which we started in February 2000, consisted of going to talk to about 30 or 40 City institutions and explaining the Tenon concept, what it was we wanted to do and how we were going to do it,' Buckley says. 'We were fortunate enough at the end of that process to have 20 or so leading City institutions backing the idea.
They included the likes of Hendersons, Fidelity, Gartmore and others.'
So with £50m sitting in the bank, Tenon started searching for suitable targets. In September 2000, it acquired its first firm, Morison Stoneham, followed by Williams Allan Group, BKL Weeks Green Group and Berkeley Jackson Group.
April this year saw Tenon complete another wave of purchases, buying the non-audit arms of Lathams Group, Scott Oswald, Jennings Johnson, Godfrey Allan Group and the insolvency arm of Horwath Clark Whitehill & Co (the 'new practices'). These firms have a combined turnover of £32m, for which Tenon is paying £59m in a combination of cash and shares.
Such is the faith of its shareholders, that when Tenon recently approached them for yet more funds, they willingly coughed up. Despite difficult market conditions, Tenon had commitments for a further £40m after an open offer of new shares. And as far as yet more capital is concerned, as Buckley points out, there is still the ability to borrow. With the most recent acquisitions, Tenon's annualised turnover has become £60m - well on target to reach £100m of annual income by 2005. However, Buckley thinks this may be achievable by the end of next year.
Although the first year of the company's existence has seemed like a shopping spree of gargantuan proportions, there is an end in sight where growth will be organic, claims Buckley. 'There will always be acquisition opportunities throughout Tenon's development but once we have made the core acquisitions in the first 18 months, that process will slow down.'Stake in the future
To date, Tenon has shelled out over £100m to acquire the nine firms it now has under its umbrella. But it is not a question of blindly buying as many practices as it can get its hands on. According to Buckley, there are two main drivers. 'One, it is driven by the need to have regional coverage throughout the UK - and we are a long way down the road to achieving that.
'Second, it is a question of making sure that we have the relevant specialist expertise throughout the UK. For instance, if we get to the position where we discover that we don't have enough expertise in corporate finance in London, that could lead to an acquisition of a corporate finance firm - it wouldn't necessarily be an accountancy firm - that we could tack on.'
You would be forgiven for thinking that all those selling up to Tenon must be doddering old number-crunchers who were just hanging on until retirement, overjoyed to receive a lump sum. On the contrary, Buckley states that the average age of the partners is in the 40s, and rather than taking the money and leaving, the partners stay on. But what would make partners in already successful accountancy firms from around the country surrender their autonomy and risk half the value of their firms by accepting shares as part-payment?
'First, they have an opportunity to invest their businesses in Tenon with all the benefits of Tenon. Second, the partners in the practices - their average age is not 59 and a half, but in the 40s, so it is not a retirement option to then go and spend their time on the golf course. They are staking their future, so it is extremely important to them that this is a success. They all continue to work - they have a major stake in the business. Now, 25% of the business is held in equity by vendor partners - it is a very major incentive.'
Buckley believes the smaller firms didn't actually have much choice - they recognise that it would be impossible to remain competitive in the modern marketplace without quick access to capital. 'I was convinced the profession needed access to capital in order to survive, and thought this idea would be attractive to quality practices.' And it appears he was right.Today the UK…
The tricky task Tenon needs to tackle now is to integrate all its acquisitions, which will require a mammoth branding exercise. Again, Buckley is calm about the prospect. Already, he says, 'every single practice has Tenon in the name so it is Tenon Jackson, Tenon Lathams and so on. There is an understanding that this is effective immediately, and eventually only the Tenon name will be used and the legacy name will be dropped.'
It is Buckley's intention to 'take the best of the legacy firms and try to blend them into the future operation of the company'. Obviously common systems will also be introduced - already there are features such as a national service line in place. And as far as expertise is concerned, the core disciplines will be available in every region; but 'it is not necessary, for example, to have a VAT expert in every office'.
The firms already on board have been chosen both for their existing expertise and location. Any holes in the network of firms will be plugged by a combination of knowledge-sharing and, if necessary, further acquisitions.
But why stop at the UK? Tenon has, indeed, no intention of resting on its laurels - Buckley views international expansion as 'a very important opportunity. At the moment we have our hands full so we won't be thinking about that until 2002. Obviously, as a result of the acquisitions so far, we now have international associations - we just have to decide how we deal with them.'Secret of success
Critics have cast doubt on every stage of Tenon's development, but despite the numerous pitfalls that could have beset the company along the way, at the moment it seems it can do no wrong. Buckley offers some advice, which Tenon has been mindful of, and which he believes has contributed to its success: 'The first is to protect the downside of any deal you do as much as possible. And the other absolutely fundamental thing that you have got to do is protect your assets, which for Tenon is its staff and clients, which requires a different management style.'
Buckley's approach to managing stems from where he finds his own motivation - believing in what the company is trying to achieve: 'I think you need to get people to buy into the vision - they have got to feel happy about it and believe it will be a success. Then everybody is working towards it being a success.'