Merger loss is clients' gain
What are we to make of the collapse of the Ernst & Young/KPMG merger?
Explanations range from the simple – they realised they wouldn’t get on – to the devious: it was all a spoiling tactic to thwart the Coopers and Price Waterhouse merger (which is still on). True, compared to the latter this is the end of a whirlwind holiday romance rather than the collapse of a dynastic alliance. But it has given some tantalising glimpses behind the smooth facade of the professional partnerships.
There is obviously a wide divergence in practices between Big Six firms, which has become more apparent as the partnerships’ due diligence has led them to delve into each other’s business. Whether the industry will ever recover from this unprecedented mutual disclosure remains to be seen.
What is clear is that mergers are never going to be a quick way to catch up with Andersen. Quite the reverse. KPMG and Ernst & Young may well have looked at their growth projections for this year – 50 per cent is feasible – and wondered at the consequences of entering a lengthy merger. After a couple of years of stalled growth and restructuring costs, the combined partnership might well be of a smaller size than either player could have achieved on their own.
Another possibility is that the match was sunk by the accountants. No matter how much the press may have spoken of “accountancy firm mergers” both moves were driven exclusively by consultancy considerations. And, witnessing the increasingly bitter divorce between Andersen Consulting and Arthur Andersen, the accountants may have questioned the wisdom of creating a consulting cuckoo which might outgrow the nest and fly away.
The mismatch also raises the question of how far the old partnerships really have gone in transforming themselves into the global entities they claim to be. Even the most skilled change management specialist would balk at the task of welding together two organisations composed of thousands of ruggedly individual owner-managers. It is also significant in this context that in the war between the Andersens the accountants have claimed that “Andersen Consulting” is itself little more than a legal fiction, and the firm still really consists of hundreds of autonomous country practices.
Meanwhile a delighted Deloitte & Touche merrily snipes from the sidelines, claiming in a new ad campaign to be “Focused on our clients” while others are “Distracted by in-fighting”. Clients? Who they? It’s a message their rivals would do well to heed.