RSM buys out shares of former UK partners in wake of boardroom coup

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Accounting firm RSM has bought out most of the shares in the business held by its former UK partners, consolidating the power of its new management team two years after the entire board was ousted following an investor coup.

The UK’s seventh-largest accounting firm by revenue was thrown into chaos in 2019, when its chief executive and chief financial officer left their roles following the discovery of almost £10mn of misstatements in RSM’s own accounts.

The episode led to a shareholder rebellion backed by about two-thirds of investors, triggering the resignation of the entire board and a 10-way battle to become the new chief executive that played out over a marathon annual meeting in April 2020.

Most large accounting firms in the UK are structured as partnerships, owned by the senior practitioners who run them. RSM is unusual because it is incorporated as a company and its partners have historically retained shares in the business, giving them a say in the selection of management and how the firm is run, even after they have retired or moved to a rival.

RSM told the Financial Times it had launched the share buyback in January “to strengthen the firm’s ability to execute [its] long-term strategy and to facilitate an exit route for those retired partner shareholders wanting to realise their investment”.

A total of 215 former partners had sold some or all of their shares as part of the deal, which completed in March, it said. Former partners previously held about 60 per cent of the shares, RSM added.

The firm did not say how much it paid for the shares.

The shake-up means about 95 per cent of the shares are now held by the current partners either directly or through a “partner benefit trust”.

RSM employs about 4,000 people in the UK, and sells audit, tax, consulting and corporate finance advice to midsized companies.

It is part of a group of smaller UK firms, alongside BDO, Grant Thornton and Mazars, which are trying to break the stranglehold of the Big Four — Deloitte, PwC, KPMG and EY. RSM was previously called Baker Tilly before it acquired the trading subsidiaries of RSM Tenon, which collapsed after an accounting scandal in 2013.

Mid-tier accounting practices are poised to win more audit mandates from large London-listed firms if the government proceeds with long-awaited reforms aimed in part at addressing the dominance of the Big Four.

Since 2019 RSM has moved into the FTSE 350 audit market, winning work that involves checking the books of companies such as Mike Ashley’s Frasers Group, bakery chain Greggs and Clipper Logistics.

Its move into auditing larger listed groups raises the prospect that it will be elevated to “tier one” status by the Financial Reporting Council, making it subject to more stringent quality inspections alongside the Big Four, BDO, Grant Thornton and Mazars.

The firm reported a 6 per cent rise in revenue to £376.4mn in the year to March 2021, while pre-tax profit, after partners had been paid, rose 9 per cent to £10mn. The UK operations are part of RSM’s global network, which reported revenues of more than $7bn in 2021.

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