View the Top 20 International Networks 2019
View the Top 20 Alliances and Associations 2019
Against a background of continuing global economic uncertainty, the largest international networks, alliances and associations across accountancy have maintained positive growth rates, while mergers are still on the agenda as groups adapt to the changing needs and demands of their members.
The 2019 Accountancy Age International Survey reveals steady growth of nearly 9% across the board – the top 20 networks increased their fee income by 6.6% to hit almost $200bn (£154bn), while the top 20 associations and alliances achieved a more impressive growth rate of 15% reach a combined fee income of nearly $38bn. This latter growth is in part accounted for by a massive increase in fees at IAPA, but stripping this out would still leave the average growth rate at 7%.
The survey is of course dominated by four names – Deloitte, PwC, EY and KPMG, which between them account for $154bn of the total income. Despite ongoing scandals, reviews and investigations, these four groups managed to grow their collective fee income by $8.9bn (6.2%), reflecting the overall growth rate in the market.
Deloitte Touche Tohmatsu (DTT) maintains its leading position above the rest of the networks with a 7% growth rate that pushed its income to $46.2bn. That is some $3.75bn more than rival Big Four network PwC, which saw its income increase by a more modest 4.3% to £42.4bn.
EY remains in third place with $36.4bn, up from last year’s $34.8bn, a growth rate of 4.7%. KPMG is fourth with nearly $29bn, up 9.7% on last year, a good result considering the scrutiny it has been under in South Africa, the UK and the US.
BDO leads the rest of the pack, recording nearly $9bn in fee income, up 10.7% on its previous year’s figures. Rival mid-tier network Grant Thornton has reclaimed its sixth position from RSM by increasing fees by 9% to hit $5.45bn. RSM’s growth rate of 5.4% drove its fees up to $5.37bn.
Successful and unsuccessful mergers
Only two of the top 20 networks showed a fall in income – PKF International and MGI Worldwide, down 1.9% and 1.8% respectively. The latter has, however, just announced a merger with CPA Associates International (currently ranked 16th in the alliances and associations table with fees of $414m, down 15% on last year). The move will create a combined $889m network, which would place it above UHY International and just below Ecovis.
Clive Viegas Bennett, CEO of MGI Worldwide, explains the reasons behind the merger, which is due to come into effect in January 2020: “This merger greatly strengthens the already solid market positions of both organisations and the resources for our member firms. For members, our coming together will bring a wide range of new benefits, access to more business opportunities, wider geographical scope and significant knowledge and technology exchange.
“The merger will help us not only retain the excellent firms within our existing organisations but also attract new members who are looking for a different approach and greater support from a global international network.”
It is this drive to improve the support for member firms that could see more mergers. However, it is more likely that individual country firms will switch from one network or association to another as they seek to boost their own global reach and look for the necessary support as they grow and react to changing market conditions.
As Terry Snyder, CEO of Allinial Global, which made an aborted attempt to merge with IAPA in 2016, says: “We fully expect more changes as firms look for more value for their investments in associations and networks.”
Difficulties at merging at a network or association level
Others recognise the difficulties at merging at a network or association level. As Martin Sharp, executive director at DFK International, says: “There has always been some level of firm movement between and within networks and associations and we expect this to continue. Some of this stems from the challenges of partner succession and sometimes there is a cascade effect resulting from a merger.
“It seems likely that there will be continuing consolidation in the market, which will result in some networks losing members and seeking to recruit replacements from other networks and associations. While mergers at network level are possible, these are likely to be rare among the larger networks and associations as they would result in considerable overlap and duplication.”
Michael Reiss von Filski, GGI’s CEO, agrees. “Mergers of networks or associations are getting more and more complicated. There is always a considerable overlap between existing firms and the likelihood to obtain any other benefit than climbing up the rankings is not always granted.”
However, he warns against firms moving too often between groups. “Switching from a network to another or from an association to another is a reality all organisations are experiencing over the past decades. Our understanding is that sometimes it can make sense for a firm under specific circumstances, to switch from a network to an association or the other way around. However, switching network or association every one to three years does not help at all: it takes several years to build up long-lasting relationships and to benefit from them.”
Regulatory oversight and scrutiny
But this is only half of the story. As well as internal-facing issues such as maintaining happy members and looking for geographical reach, all the groups face the external pressures of regulatory reviews and increase stakeholder scrutiny. As Shariq Contractor, chair of INAA, says: “The increase in regulatory oversight and other scrutiny has and will continue to place upward pressure on audit and other compliance related fees as additional time is required to ensure audit firms comply with an increasingly growing amount of professional standards, often by multiple regulatory groups.”
However, he believes the impact of market reviews such as the current investigation in the UK could be felt far wider than the very largest groups. “We do not think that market interventions, like breaking up larger firms, will create opportunities or threats,” he says. “However, capping the number of audits or types of audits a firm can perform and/or barring more non-audit work would pose a threat. We’re now seeing a slow move towards barring non-audit work with the tightening of auditor independence rules for certain types of audits like public companies, governmental entities and other entities subject to Government Auditing Standards.”
Others also see opportunities and threats as the market shifts. James Hickey, CEO at PKF International, says: “Irrespective of any formalised market intervention, we are witnessing the market start to change anyway as business stakeholders become more trustful of the value that challenger firms, outside of the Big Four, can bring. Consequently, regardless of when, or what type of intervention we might see in the future, we will continue to put ourselves forward for the opportunity to engage with larger, more complex entities.
“Any future prohibition of additional types of non-audit work for audit clients will be both a threat and an opportunity for our network. However, it will have a similar implication to all audit networks. So, the question here shouldn’t really be around the nature of the opportunity or the threat, rather around how we position ourselves as a network to stay ahead of the rest of the profession, when we enter the new world of non-audit services and auditor independence.”
Impact of changes on international networks
Hickey also makes the observation that there are wider changes in play and that the pace of change in the market could have considerable impact on all the networks and associations. “Change is coming at us from all angles – technology, people, clients, society as well as from regulation and public scrutiny. So, we have to embrace it as a part of our business strategy, anticipating change in all of its forms so that we are well-positioned for the opportunities that become available.
“This is really important for networks to grasp, particularly for a profession as conservative and risk adverse as auditing, a profession which hasn’t historically had to deal with the level of change that it will continue facing from here on in.”
Stephen Heathcote, newly installed CEO at PrimeGlobal adds: “In the debate over audit reform, the issue of trust affects all of us. Other service providers are trying to claim this space, so we have to demonstrate our relevance.”
Heathcote also observes an ‘arms race’ in technology, with the larger international networks trying to compete with Big Tech. “Unlike the big firms, we are not trying to compete. The market is moving very fast, and more solutions are becoming available. We aim to raise awareness with our firms so they can make the right decisions. This is our core purpose, to connect people with those that can help.”
This is a theme picked up by Richard Attisha, CEO of TAG Alliances, who argues that the international groups can never have too many friends: “We continue to make progress in forging relationships, or “friendships”, with providers of services and solutions to professional services firms. Clients want to see that firms are being innovative and leveraging technology, and while the Big Four may have seemingly endless resources to invest in new technologies, it is not easy for mid-size firms to invest in and support the new technology they need.”