November 29, 2013 / 12:06 AM / in 4 years

Accountant BDO sees mergers in the sector speeding up

LONDON, Nov 29 (Reuters) - Global accountant BDO predicts rapid consolidation in the sector due to pressure on fees, regulatory change and big investment costs, that will leave only a couple of mid-sized firms.

“Within the next five years, we anticipate that the global consolidation of our profession will gather pace, leaving only two or three substantial mid-tier networks globally,” BDO Chief Executive Martin van Roekel told Reuters.

The 50-year old London-based company said on Friday that its revenues in the financial year ended Sept. 30 rose 7.3 percent to $6.45 billion, due in part to a string of mergers including three in the United States and with Britain’s PKF in March.

The global accounting sector is dominated by the so-called Big Four firms, KPMG, EY, Deloitte and PwC, with BDO and Grant Thornton leading the mid-tier pack.

Van Roekel said the Big Four wouldn’t suddenly become the Big Five or Big Six as the gap between them and mid-tier firms would take years to close.

There are about 10 mid-tier firms with revenues of more than $2 billion and he expects the merger talks now going on to whittle this down to 2-3 over the next five years or so.

Consolidation is being driven by the need to invest heavily in technology, regulation, and the need for an extensive cross-border presence to serve increasingly international customers.

“A number of smaller mid-tier firms are struggling with that investment. Based on discussions I have had, it gives me confidence that mergers are not going to stop,” he said.

Even if BDO and Grant Thornton merged, their combined revenues would be half that of the smallest of the Big Four.

“If I look at the size of the Big Four, it’s not realistic to suppose we will reach that size. We don’t want to be a copy of the Big Four but to be a strong alternative,” he said.

Concerns over the dominance and length of time the Big Four have audited the books of banks prompted the European Union to propose that top companies change accountants regularly - a step U.S. lawmakers have rejected.

Negotiations on the law are edging towards a deal, possibly as soon as next week, which would mean companies having to switch accounting firm about once a decade.

Van Roekel said this would offer opportunities to mid-tier firms but real change would take years. Britain has put pressure on firms to switch accountants but so far the changes have been between the Big Four.

“We can’t sit and wait for the market to pick this up. We have to be active ourselves and make sure we demonstrate we can handle those big clients,” van Roekel said.

The industry is monitoring closely plans by KPMG and EY to merge operations in Denmark, an unusual move given the fierce rivalry between the Big Four.

“It’s going to have a serious impact on that market. We don’t know the real reason why they are merging,” he said.

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