August 10, 2022

Don’t Be Surprised to See Accounting Firms Aggressively Merging in the Next Year or Two

Have you heard? There’s an accountant shortage! This is probably coming as a shock to you but it’s true. Firms are trying all sorts of tricks to find and retain talent but the problem may be deeper than not having the right set of perks but rather an actual shortage of qualified talent. This issue has been building since accounting graduate numbers peaked in 2015-16, seven years later we’re starting to see the effects of a shrinking pool of accountants. Maybe. Probably.

Across the pond, Accountancy Age says firms are looking to mergers to solve their talent problems. Why look for talent that might not exist when you can just absorb someone else’s? Kinda genius really.

Meanwhile, the UK accountancy M&A market has gathered significant pace, with consolidation soaring in recent months – a trend that some believe is driven by ongoing skills shortages in the sector.

Alongside more conventional ambitions such as regional and commercial growth, a key motive for acquirers is the absorption of a new talent pool, according to James Gosling, head of M&A at AJ Chambers, a specialist in accountancy practice consolidation.

“The fight for talent is very tough at the moment. So, more often than ever, we’re seeing acquirers that, alongside looking to build the business, will be looking to acquire the smaller firm’s talent.”

This isn’t surprising. Along with non-traditional hires, raising fees, firing clients, and outsourcing, merging is a successful and accessible strategy for firms feeling the labor crunch.

The exasperated small firm owner who wrote in to us last week to lament their own talent difficulties mentioned the M word too:

I have been reading constantly about how the large firms are merging, paying more for top talent, taking people away from other firms, etc. due to the natures of the current accounting marketplace.

Off the top of our heads there have been two big accounting firm mergers in the past few months: Elliott Davis and Whitley Penn joining forces to become Elliott Penn and BKD hooked up with Dixon Hughes Goodman to become the spectacularly cringy FORVIS. Oops, we forgot Marcum and Friedman. And BPM has been busy on a merger streak since late 2020. Maybe there is something to this idea…

Speaking of mergers, did you guys know KPMG and EY almost merged in the 90s? It’s true, learn your accounting history. In the late 90s, clients were served by the prestigious Big 6 accounting firms (listed in descending order by revenue): Andersen, Ernst & Young, Deloitte & Touche, KPMG Peat Marwick, Coopers & Lybrand and Price Waterhouse. Check out these 1996 revenue numbers:

Andersen Worldwide: $4.5 billion ($8.5 billion today)
Ernst & Young: $3.6 billion
Deloitte & Touche: $2.9 billion
KPMG Peat Marwick: $2.3 billion
Coopers & Lybrand: $2.1 billion
Price Waterhouse: $2 billion

In September 1997, Coopers & Lybrand and Price Waterhouse clanned up to diss Lybrand and form Price WaterhouseCoopers. If you’ve ever wondered why there is a capital letter in the middle of WaterhouseCoopers well now you know. Not to be outdone by their smaller competitors, EY and KPMG — then Ernst & Young and KPMG Peat Marwick — decided they wanted in on this merger stuff and announced they too would be merging. Kinda sounds like your cousin announcing she’s pregnant at your baby shower tbh but whatever. The European Commission began an extended antitrust probe of the proposed merger and turned it into “a complete nightmare” according to a senior partner at EY who spoke to the LA Times in 1998. “When you added it all up, it was just going to take a lot of time, a lot of money and a lot of blood, sweat and tears,” they said. Four months after the big announcement, the regulatory complications got the best of the two firms and they decided not to merge after all. On top of that, a merger would have created a bunch of conflicts with clients and the two firms didn’t want to be arguing over whose juice the merged firm would keep.

Anyway, keep your eyes peeled. It would not be at all surprising to see several big mergers ahead. If anyone hears anything…you know who to call. In the meantime, anyone want to speculate wildly about who will be next?

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10 Comments

    1. Andersen went under when it audited Enron and Worldcom. It split its consulting practice off before that, which is now called Accenture

  1. I am an internal audit manager at a public company but am interested in coming back to PA as an audit senior manager. How likely is it a firm would let me come back to PA this way?

    1. Very likely; some firms are in fact hiring specifically for senior managers. I would imagine you’ll be pegged for public filers due to IA experience, but as far as them taking you? very likely

  2. Why waste time with these loser firms when you could penetrate DYNAMIC GT as your CHOSEN MARKET using your INSTINCT FOR GROWTH!!!!

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