The days of Grant Thornton being the fifth-largest accounting firm in the United Kingdom appear to be numbered, as Moore Stephens, a top 10 firm in the U.K., is reportedly getting into bed with BDO, the sixth-largest U.K. firm.
The Times in London wrote yesterday:
BDO, the accountancy and business advisory firm, has confirmed that it expects to merge with rival Moore Stephens as early as spring next year.
The transaction would mean BDO leapfrogging Grant Thornton to become the country’s fifth largest accountant by revenue. It comes during a transformative time for the audit market and could trigger a wave of consolidation in the sector.
The deal, which was first mooted four months ago, will add £135 million to BDO’s top line, bringing annual turnover to £590 million. Grant Thornton — currently the largest challenger to the Big Four firms, Deloitte, PWC, EY and KPMG — recorded revenue of £500 million in the UK last year.
Economia reported that the combined firm will take on the BDO brand, and have 264 partners and 5,000 total staff members.
The deal relates only to Moore Stephens LLP, consisting of the London, Birmingham, Reading, Bristol, and Watford offices of the current Moore Stephens U.K. network, Economia said. BDO plans to take on a second office in London to accommodate the growth.
The decision to possibly merge in Moore Stephens was a no-brainer for Bravo Delta Oscar, with both firms having “like-minded people who think we’re better off together,” BDO Managing Partner Paul Eagland told City A.M.
So, it sounds like BDO and Moore Stephens got to second base this summer, but things then got pretty hot and heavy:
What started as a summer crush quickly turned into something more serious: over a series of meetings earlier this year, the top brass at BDO and Moore Stephens soon realised they had a lot in common, and have spent a “very positive four months” figuring out ways of tying up since then. “We spoke about the change going through the market, we looked at each of our firms, it was just a fantastic bond,” said Eagland.
“Off the back of that, we then said: ‘Why don’t we sketch out what a combined force might look like?’”
Can you sketch out two accounting firms bumpin’ uglies? Ewww.
[T]he two companies saw that forming a stronger challenger firm would put them in pole [LOL!] position to reap the benefits of any improved competition, as the sector faces scrutiny from politicians and regulators aimed at disturbing the long-time dominance of Deloitte, EY, KPMG and PricewaterhouseCoopers.
Once the dust settles, Eagland expects things to land in BDO’s favour, but he’s under no illusions that the firm’s new fifth-place position puts it in a position to go totally head-to-head with the Big Four just yet.
Yeah, BDO should probably slow their roll on that belief. Even with its estimated £590 million in revenue thanks to the Moore Stephens deal, BDO is still way behind the firm that puts the “4” in the Big 4, KPMG, which still had more than £2 billion in revenue in FY 2017. (KPMG has yet to release its FY 2018 revenue.) As City A.M. points out, KPMG’s total revenues in the U.K. were roughly equal to firms five to 11 combined.
However, as the firm in the No. 5 slot, Eagland wants BDO to ultimately be so respected that it is “automatically included” in every tender process among Financial Times Stock Exchange clients, City A.M. said. GT gave up on that “respected” BS earlier this year, as it said it would not bid for new audit work at the largest U.K. companies because it’s “extremely difficult to penetrate [HA!]” the audit market, which is dominated by the Big 4, in its current form.
But even though its hookup with Moore Stephens was satisfying, BDO is not going to stay monogamous, Eagland said.
“It is interesting how quickly things can change, and I think when we roll forward to summer 2019, there will be more changes than people are expecting,” he said. “We will continue to have conversations with other people.”
But those potential partners won’t be as good as when they rolled around in the sheets with Moore Stephens.