BDO to overtake Grant Thornton following Moore Stephens deal
With BDO and Moore Stephens reportedly poised to clinch a merger deal in the near future, the duo are positioned to leapfrog Grant Thornton as the UK’s fifth largest professional services firm. The transaction is expected to complete in spring 2019, and will create an entity with a gross annual revenue of approximately £600 million.
The professional services scene of the UK is still dominated by the Big Four, as it is just about everywhere else on the planet. PwC remains the largest, reporting annual revenues of £3.76 billion in autumn 2018, followed by its nearest competitor Deloitte, at £3.38 billion. EY is the third largest accounting and consulting firm in the UK, and while KPMG is yet to report its annual figures for 2018, as the last of the Big Four to do so each year, it is likely to retain its position as the UK’s fourth largest auditing and advisory firm on revenue.
While the quartet’s dominance is so utter that it has provoked calls from critics for government intervention to boost competition, particularly in auditing, the Big Four retain a seemingly unassailable lead in the market. Beyond that grouping, however, life is very different. At the time of writing, Grant Thornton remains the UK’s fifth largest auditing and advisory firm, having brought in £500 million in its latest financial year. Regardless of the recent dramatic departure of the firm’s CEO, Sacha Romanovitch, this figure is likely to have increased in 2018; and yet Grant Thornton may still lose its place as the ‘best of the rest’ in the UK.
That is because a proposed deal between the next largest competitor, BDO, and fellow top 10 professional services firm Moore Stephens could be on course to forge a company with a revenue £100 million higher than that of Grant Thornton. BDO, the sixth largest consulting and accounting firm in the UK, reported that underlying revenue for this year hit £464 million. The deal would add a further financial clout of £138 million to that from Moore Stephens, creating the fifth largest firm in the UK in the process. The purchase would also consolidate BDO’s position ahead of RSM, which currently enjoys annual UK revenue which is over £130 million less than BDO.
Reports in the UK suggest that BDO and Moore Stephens are already in the advanced stages of merger discussions. Sources with knowledge of the proceedings have confirmed Partners at both firms have approved the proposed merger, which is now subject to final contracts. The deal is hoped to craft a new entity which will not only enjoy larger revenue, but be the leader in advising the UK’s entrepreneurial mid-sized businesses in a period of rapid change, thanks to digital disruption and the completion of Brexit. This period looks set to prove especially lucrative for consultancies catering to mid-tier businesses, unsure of how best to weather the storm, as well as navigate audit, tax and advisory matters.
To that end, the move would also look to cement BDO’s position as the first-choice auditor for AIM businesses, where it recently extended its lead over the Big Four themselves. The new combined firm will be one of the top auditors in the country based on the number of UK-listed companies it audits. Elsewhere, the two firms operate in similar sectors, including energy, technology, retail, real estate, financial services and more. Moore Stephens also has a strong client base in the shipping, insurance and donor assurance sectors.
New number 5 in the market
The conclusion of the conjoining of the firms is anticipated for spring 2019, with the combined firm commanding a gross annual revenue of over £600 million, delivered by 5,000 staff across the country. BDO is reported to be considering adding a second London office to its headquarters in Baker Street to accommodate this headcount growth, while retaining its city-based presence for clients after the merger. The merged firm will remain part of BDO internationally – the largest mid-tier accountancy organisation in the world with revenues of over $8 billion and operations in 162 countries.
Paul Eagland, Managing Partner, BDO, said, “If ever there were a time for firms to turbo-charge their growth, it’s now. As a combined firm, we offer greater choice, competition and scalability to the top-end of the market, and are better placed to deal with any economic disturbance from Brexit… BDO is in a great position in the market, both in the UK and across the world. In the wake of Carillion and the subsequent focus on competition in the audit market – the UK market now has a better appreciation of BDO’s capability and quality. This deal increases our credibility further and proves our commitment to competing in the top-end of the market.”
Simon Gallagher, Managing Partner, Moore Stephens, added, “Clients are asking us to deliver an ever-increasing range and depth of solutions, provided globally. Combining with BDO makes providing that much easier. Moore Stephens is a profitable business delivering double digit growth for several years in a row. This merger will allow us to remain on that kind of trajectory. It’s the people who will make this merger a success, which will translate into greater career opportunities and development, allowing them to deliver more valuable services to clients. BDO is also a well-respected, financially-stable and focused firm, with an entrepreneurial heritage. Combined, we offer something truly unique.”
