For some time now, observers have voiced concern about the relative lack of choice when it comes to large audit firms. Yes, they are all fine organizations with plenty of smart and capable people but some companies prefer to have a few more options. They're not asking for a Vegas buffet or anything, but, you know, a little variety wouldn't hurt.
The problem, as most people see it, is that the second-tier firms simply don't have resources to sufficiently audit the General Electrics and AIGs of the world. Companies that are so immense in size and scope that the mere thought of trying to plan for such a task would cause a Grant Thornton manager to sob in the corner of a public bathroom for twenty minutes.
This problem is especially daunting in the UK where 99 companies out of the FTSE 100 engage a Big 4 auditor. British regulators don't see that as ideal. PwC, for one, thinks the audit market is a FIERCE one and doesn't really see what the problem is. They just lost a client to Ernst & Young for crying out loud! Grant Thornton, on the other hand, can't believe PwC can say such things with a straight face. It's insulting.
Anyway, conventional wisdom tells you that if the audit market is as FIERCE as the Big 4 claims, you'd think that it would be just a matter of time before things started picking up for those second-tier firms. And today's report that the UK arms of BDO and PKF are getting serious about a merger is probably encouraging to some, but the reality is, as the Financial Times reports, that even if the deal were to happen, Bravo Delta Oscar Papa Kilo Foxtrot "would still have to add more than £1bn of sales for it to break into the ranks of the four biggest firms."
It's pretty big opportunity but up until now, some people have been wondering where the effort is:
[S]enior accountants at the Big Four frequently question the ambition of their medium-sized rivals, while also raising an eyebrow at the relative lack of consolidation among these firms so far. Simon Michaels, managing partner of the UK arm of BDO, denied this charge of timidity, saying Wednesday’s announcement reflected a desire to lead ongoing mid-tier consolidation: “There is a real appetite on behalf of both firms to invest.”
UK arms of audit firms in merger talks [FT]