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BDO office

BDO pushes for top five with Moore Stephens merger

26th Nov 2018
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Step aside Grant Thornton. BDO is expected to muscle into fifth position in the UK accountancy league table thanks to a merger with fellow top 10 firm Moore Stephens LLP (not the international network).

BDO and Moore Stephens LLP confirmed merger talks are in the advanced stages, with a completed deal slated for spring 2019. The combined firm will operate under the BDO brand and remain part of BDO globally.  

In joining forces, BDO and Moore Stephens would command £590m in combined fee income, overtaking nearest rival Grant Thornton’s £550m to claim the position of the UK’s fifth largest accountancy firm.  

Together, the two firms will raise their numbers to 5,000. BDO will also sweep up the London, Birmingham, Reading, Bristol and Watford offices of the current Moore Stephens UK network.

‘Turbo-charge growth’

BDO’s managing partner Paul Eagland confirmed the talks this morning. “If ever there were a time for firms to turbo-charge their growth, it’s now," he said.

“As a combined firm, we offer greater choice, competition and scalability to the top-end of the market, and are better placed to deal with any economic disturbance from Brexit.”

Moore Stephens’ managing partner Simon Gallagher made a similar point, saying the merger would “provide a platform for continued, sustainable growth, as well as offering something different to the market at this important time”. 

(L-R) of Paul Eagland at BDO and Simon Gallagher at Moore

Eagland emphasised the firms’ shared cultures and values. But just as importantly, the two firms have compatible operations in specialist sectors such as shipping, insurance and donor assurance.

A Big Four challenger?

This merger follows hot on the footsteps of the Competition and Market Authority’s call to break the Big Four’s dominance over the UK audit market following a series of audit scandals involving the big firms, including the collapse of Carillion and Patisserie Valerie’s audit woes (carried out by BDO’s rival Grant Thornton).

In the wake of those scandals, BDO has set its sights on this upper end of the audit market. The merger with Moore Stephens would would bolster the firm’s tax and audit practices for AIM businesses and entrepreneurial mid-sized businesses.

BDO still has a way to go to reach the £2.2bn revenue declared by KPMG last year, but Eagland said the deal puts BDO in an opportune position: “In the last 12 months – in the wake of Carillion and the subsequent focus on competition in the audit market – the UK market now has a better appreciation of BDO’s capability and quality.

“This deal increases our credibility further and proves our commitment to competing in the top-end of the market.”

More mergers to come?

Eagland also hinted in the FT (behind a paywall) that more deals could be on the way. “We would love to talk to other firms who want to join the journey,” he said.

BDO’s merger plans intensify this year's consolidation trend. Until now the Cogital Baldwins group has made the running, most recently when it acquired Top 20 firm Wilkins Kennedy.

And memories will still linger from BDO’s last big merger in 2013, when the firm swallowed up the PKF brand (not the international network).

Go big or go niche

Rumours about the merger sparked a flurry of opinions within the accountancy sector. Darren Jasper, currently PKF-Francis Clark’s head of cloud accounting, but who is leaving to join Receipt Bank, said the merger adds further weight to the ‘go big or go niche’ dilemma for accountancy firms.

Jasper said firms have the choice of “either go big and have the resources and economies of scale to build for the future and/or soak up losses in a changing environment, or niche/diversify, like these boutique practices where you set the criteria for your client base but they come to you for your unrivalled expertise in that area”.

But seeing as the news prompted confusion over international networks and professional services firms, the deal appropriately could spell difficult times ahead for networks.

“I honestly see networks like PKF getting hit hard by these acquisitions, including the Cogital/Wilkins Kennedy deal,” said Jasper. “They purport to be big practices and report network figures, but there is little common ground within networks other than joint marketing. These constituent firms are not large enough - due to the mid-tier nature they are risk-averse and too much red tape - or small enough, where legacy issues cause a lack of agility and a desire not to upset the current client base.” 

For another take on this story, The Imprudent Accountant has filed his correspondence here

Replies (4)

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By Mark Lee
26th Nov 2018 17:43

I would agree that this is the NEXT of many more mid-tier mergers.

Disclosure: I'll be an alumnus twice over. I was headhunted to join BDO as a partner in 1997.  However I originally trained and qualified with a predecessor firm of Chantrey Vellacott that merged with Moore Stephens in 2015.

Remembering my days as a partner at BDO (I left in 2001), the aim was to stay ahead of GT in the league table. This only started however after BDO first leapfrogged GT by merging with Moores Rowland in 1999.

Following that merger BDO learned what GT had been protecting. That is the fact that an enormous amount of work goes to the biggest firm outside of the Big 4 - when they are all conflicted. I suspect this remains the case.

Before the PKF mergeover, BDO did a great deal buying the tax practice at WJB Chiltern in 2007. This was easier to absorb as Chiltern wasn't a partnership.

If memory serves, that was partly a response to GT's earlier mergeover with Robson Rhodes and allowed BDO to reclaim the coveted 5th spot again.

When a merger doesn't involve all the offices (as with the current/imminent merger) it is always interesting to see which ones decide to go it alone and which ones look to join another national brand. Much depends on the client base of the office, the age of the partners and their aspirations.

For the more ambitious this could be a fabulous opportunity to do their own thing without the shackles and restrictions imposed by HO.

Time will tell.

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By carnmores
26th Nov 2018 17:48

the fact remains that big 4 auditing is not up to par. they staff many jobs with juniors who are possibly not properly trained and then charged out at a huge multiple. Understanding audit is not easy it took me 4 years to get the hang of if it in the 70's, it finally came to me after reading 'concepts in company auditing' by Prof Lee

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By User deleted
27th Nov 2018 21:14

BDO has been trying to reinstate the term "Big 5" for years - with them as the new 5th member.

They can get as big as they like, try to reinstate or redefine terms as much as they like. They will never, ever be in that tier.

Their senior staff know it and you can tell it hurts. I've never dealt with big firm people as collectively and professionally insecure as those from BDO.

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Replying to User deleted:
By carnmores
27th Nov 2018 21:55

i can read between the lines maybe i should have stuck to auditing.....

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