Mid-tier advisory services see growth amid Big Four cuts

Mid-tier advisory services see growth amid Big Four cuts

Mid-tier advisory services see growth amid Big Four cuts

Last month it was reported that Deloitte would be cutting approximately 1,200 jobs in the United States, making it the latest of the Big Four accounting firms to take action due to a slowdown in its consulting business.

In February, KPMG also announced cuts in response to the downturn in demand for advisory services resulting in around 700 employees being axed.

John Thompson, founder and managing director at Complete Advisory Solution UK says he has seen the Big Four move in and out of consulting every few years.

“They do it for a few years, something happens in the marketplace, they sort of fall out of it a little, and then the markets improve, and they go back into it. It’s quite cyclical.”

The business model employed by the market leaders is unsurprising to Thompson, but he notes that once you get past the top 20 firms, there are not the same pressures. This means that the business model changes, and they look to build a long-term relationship with their clients.

Echoing this, Mark Cassidy, audit and business partner at Mercer & Hole, argues that the relationship between an accountant from a mid-tier firm and a large firm with a client will be vastly different because of the different client size each handle.

“You have a hugely deep relationship with those people – they phone you up ad hoc and we are always there.”

“Life at the top of a small to medium sized enterprise, turning over six to 10 million, where you’re the owner or manager, can be a lonely place, and they rely on the trusted advisor relationship that they have with me,” he adds.

Decline in advisory services has not hit mid-tier firms

The decline in consultancy and advisory services does not seem to have translated to the UK’s mid-tier firms as top 40 ranked accountancy firm Mercer & Hole is continuing to experience large growth in the area.

Henry Page, corporate restructuring partner at the firm says the firm has continued to see growth in its advisory service. He states the bond between clients and mid-tier firms is very different compared to Big Four firms and its larger clients.

“I think there is a world of difference between the big US consultancy specialists and the medium-sized UK accountancy providers“

Page says their clients don’t have to go to a board decision to get consultancy services, but instead can call them up if they ever run into a problem.

Similarly, Thompson says the Big Four and the UK top ten are playing a “different game” to the rest of the marketplace. Unlike the larger firms which are usually divided into silos, smaller firms would be unwilling to do this because they are much more client-focused, he explains.

“The big firms are often running a sort of spreadsheet management exercise, and the closeness of the relationship to individual clients is not as tight. Therefore, their mentality, their mindset, and their approach to how they look after their clients is completely different.

“So, it’s very much a spreadsheet decision, and if the numbers don’t seem like they add up to what they thought they would, they need to make changes.”

M&A activity

Following the outbreak of the pandemic, the Big Four firms embarked on a recruitment drive to meet the surge in demand for IT transformation advice as clients sought to adapt to remote work.

The period also saw a boom in corporate mergers and acquisitions. Deloitte’s US workforce expanded significantly from 65,000 in 2021 to 80,000 in the previous year, as revealed in its annual transparency report.

However, 2022 saw global M&A volumes and values decline by 17% and 37% respectively from record-breaking 2021 levels – a factor in the significant advisory cuts so far this year.

This was not the case for some mid-tier firms, as Page and Cassidy say Mercer & Hole has not seen a notable drop off.

Page says: “There is still a lot of advisory work and pre-insolvency work going on at stakeholder management level, looking at accelerated M&A processes and whether the shares can be sold at a knockdown price to avoid insolvency.

“On the advisory side, that rolls into directors’ duties, conversations, and what directors should be doing to avoid personal liability and in the twilight zone before insolvency. So, our corporate finance team is still busy, so I think there are transactions in the mid-market that are happening.”

 

 

 

 

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