Top 50 - Big Four return to consultancy in disguise

The news that Ernst & Young has re-entered the advisory services market, thanks to the end of its non-compete agreement with former consulting partner Capgemini, is of huge significance to the profession and, above all, the Big Four.

Not only will the giants of the accounting world now be able to broaden out the range of work they do along with their client base, they will also be able to rebuild business lines they haven’t touched for years. The advantages don’t end there.

The re-emergence of advisory services, otherwise known as consulting ­ even though firms are reluctant to use the phrase ­ will also inevitably boost revenues and enable them to push further ahead from the chasing pack.

The gulf between the mid-tier and the main contenders is already vast, but E &Y’s repositioning to complete the pack could see Big Four advisory services revenues rise to over £1bn over 2005 and 2006.

And all this without even touching a big-ticket IT contract. In fact, this figure will almost certainly surpass 2000 levels of around £700m, when the Big Four were involved in long-term, large-scale IT implementation deals.

In contrast, mid to lower-tier interest in consultancy work appears to have dropped off, with only PKF and RSM Robson Rhodes registering significant fee income, although the latter has seen a dramatic 50% rise in consultancy revenues. At the opposite end of the scale, Smith & Williamson saw just 2.2% of its income from consultancy.

At present, Deloitte generates the most revenue (£315m) because of its refusal to hive off its consulting arm. As a result, it is still the only Big Four firm to get involved in large-scale IT and outsourcing contracts. Thanks to this, it made a 7% leap in consulting revenues between 2003 and last year and increased to £315m the £299m it posted in the last Top 50.

Not only this, it was the only Big Four firm to report ‘consultancy’ revenue figures in our last survey. Despite once again refusing to disclose and break down money earned from ‘advisory services’, according to estimates by our sister title Management Consultancy, second-placed PricewaterhouseCoopers earned an estimated £200m, but it has made the biggest inroads with a 25% hike in revenues of £50m over 12 months.

KPMG earned £149m from advisory services, a 23% leap from 2003 to 2004, however a spokeswoman predicts this figure will grow by over 50% in the next 12 months, which could see the firm overtaking PwC in the advisory services race.

But with E&Y back on the scene things have suddenly changed and the boom times can now return to one of the most lucrative service lines that firms offer ­ and how they’ve missed it. Not only will the Big Four be challenging each other on all the standard fronts, the battle for advisory services can begin again in earnest.

One of E&Y’s senior partners told Accountancy Age that the firm intends to seriously raise the stakes in a market in which it sees a ‘huge opportunity’. It certainly means business and is currently close to appointing a head of division, as well as heavily recruiting for the 150 or so ‘consultants’ it needs to match and potentially overtake PwC’s current advisory revenues.

On top of this, it is going back to the Big Four for staff and re-recruiting from its ex-consulting arm Capgemini, as well as other more traditional consultancy firms such as Accenture, IBM and Atos Origin.

They may not refer to it as consulting, but the Big Four are without question undertaking advice-driven work helping clients improve the effectiveness of their finance functions, reduce costs and improve performance.

PwC, for example, has been a member of trade body, the Management Consultancies Association, for a number of years. And despite not entering into large outsourcing or IT deals, PwC, KPMG and now E&Y will be ramping up their efforts to outgun each other on the opportunistic ‘advisory’ battleground.