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December 4, 2022

Report: Former Deloitte UK CEO Planning a New Big 4 Firm

Ever since Andersen went down for the dirt nap (and probably before that), observers of the accounting profession have worried about the shrinking number of large accounting firms.

And sure, it's a concern, but the majority people can't be bothered with it until the Big 4 becomes the Big 3.

The other side of this issue are the high barriers to entry. Anyone hoping to break into the BIG CPA business would need money and I mean a lot of it. If you and I and 100,000 of our closest friends wanted to chip in $10,000 each, we'd still only have enough capital to compete with the likes of McGladrey and Grant Thornton. Then, of course, you'd need someone who knows the business and, ideally, a lot of accountants who would be interested in taking on the entrenched Big 4 machine. 

So who can save the capital market from this scarcity of firms? One of their own of course!

Sky News reports that John Connolly, the former CEO of Deloitte is partnering with private equity firm HgCapital on an "audacious plan" that will include "a string of takeover deals" to build a new firm to compete with the Big 4: 

Filings at Companies House show that Mr Connolly and Hg have established Cogital Group, a new vehicle which will be used to create the new professional services venture.
Sources said that Blick Rothenberg, a London-based provider of accounting, audit and tax services in which Hg invested last month, would ultimately become part of Cogital Group.
Mr Connolly, who is to become chairman of the new venture, is said to believe that there is significant scope to create a credible long-term challenger to the big four accounting firms: Deloitte, EY, KPMG and PricewaterhouseCoopers.

Blick Rothenberg is a mid-market firm in the UK with about 200 professionals and they are the beginning of this master plan to create a multi-billion dollar firm? Sure, why not. 

But honestly, I don't know how else a person would create the next mega, global accounting firm without serious capital behind it. I'm sure someone could try to bootstrap a firm and try to scale it into the billions, but most of these people are trying to build technology companies, not professional services firms. Plus, I think it's pretty rare to hear about a private equity shop getting involved with a accounting firm. Is that a thing? I honestly don't know. I'm sure HgCapital is well known in the private equity world, but I get the feeling that you'd need some Blackstone or TPG money to really pull this off. Plus, there are probably rules who can and who cannot be an owner of an accounting firm. That could limit your options, too.

But, on the other hand, if you wanted to create the next Big 4 firm, you could do a lot worse than teaming up with John Connolly. He probably knows the answers to all these questions. This will be fun to watch.

What do you think? Are Connolly and Hg on the start of something huge? Or is this venture doomed? Talk it out.

[Sky News]

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