OPINION - Swimming against the tide?
First it was Coopers & Lybrand and Price Waterhouse. Now it is KPMG and Ernst & Young. The autumn mists are thick with Big-Six merger mania. This week’s announcement of merger talks between KPMG (the second largest global accountancy firm) and Ernst & Young (the third largest) raised more questions than it answered. But it also changed the nature of the game. Coopers and PW might just have sneaked past the regulators but now, with a #10bn KPMG/E&Y mega-firm now in prospect, all bets are off.
Coopers and Price Waterhouse’s strategy was to portray themselves to the competition authorities as not so much a massive monolith, more a series of businesses flying in close formation. Hence, they said, we may be the biggest kid on the block, but examine us activity by activity and we don’t look that scary at all. With KPMG and E&Y now leaning on the same street corner, regulators in Brussels, New York, Tokyo and even London will have to take notice.
Driving this merger-mania is the logic of globalisation. Multinationals, the argument runs, want to see a familiar face wherever they go. Like a shopper in an unfamiliar town making a beeline for the local branch of Marks and Spencer, big companies like to see a name they know when they expand into new markets.
As we report this week, many finance directors of multinationals do not see it this way. They fear that their options will be narrowed by the conflicts of interest inherent in having a Big Four, or even a Big Three, handling everything from audit to corporate finance. Far from welcoming the mergers, they say they will make life much harder for the very clients the would-be mega firms say they are merging to serve.
In spite of such fears, accountancy and business services are probably one of the very few areas where globalisation really can yield benefits.
Accounting standards and business practices may vary, but shareholders and boards at corporate HQ will feel reassured that advice and audit are in the same safe hands.
The problem is how to reassure those same stakeholders that KPMG/E&Y or C&L/PW can really manage the inevitable conflicts of interest. Merger may be en vogue now but hard questions will come back to haunt the merger partners. In the industries that they advise, the multi-faceted conglomerate is a thing of the past. Demerger is the order of the day. This sobering thought should be uppermost in partners’ minds as they contemplate their own merger plans.
