What a difference a year makes. As we predicted 12 months ago, the fee income for the Big Five taken together this year breaks through the Pounds 5bn barrier, with a more than healthy combined growth rate of 15%. That’s in spite of Ernst & Young’s sale of its consultancy arm to Cap Gemini for Pounds 369m.
The combined income of the Big Five this year hits Pounds 5.32bn – an increase of more than half a billion on last year’s Pounds 4.8bn – enough on its own to create a brand new number-six firm.
In common with other years, those figures include some assumptions and estimates about growth on our part. PricewaterhouseCoopers does not issue fee income figures for the UK – so we’ve taken the firm’s global growth rate of 15% and applied it to last year’s similarly derived result.
What this does, of course, is push PwC’s UK fee income past the £2bn barrier – a position the firm perhaps can’t expect to hold on to once it, finally finds the right buyer for its consultancy arm.
Likewise Andersen does not issue figures for the UK firm, nor has it this year provided a growth rate – global or otherwise. We have therefore conservatively assumed a slowed growth rate of 10%, which puts the UK firm at number five with a fee income of £618.9m.
Meanwhile, Deloitte & Touche has taken pole position as the fastest growing member of the Big Five elite, as well as overtaking Ernst & Young to take the number three position in our league table.
Further down the list, BDO Stoy Hayward has overtaken Grant Thornton to seize the number six position, its growth rate of 16% taking the firm to Pounds 201.5m, against Grant Thornton’s Pounds 190.2m.
The Tenon factor
The much-discussed ‘Tenon factor’ has played its part. At present, the Tenon Group is made up of the non-audit business of Morison Stoneham, Williams Allan, Berkeley Jackson, BKL Weeks Green, Lathams, Jennings Johnston and Scott Oswald. That brings in Pounds 58.4m putting the company – not firm – at number 15 and making it the first plc in the Accountancy Age Top 50.
Blueprint Audit meanwhile – with the audit business of the above firms – is our other newcomer, positioned at 45 with fees of Pounds 7m. Blueprint and Tenon have a service agreement between them, but not ownership in common.
Tenon and Blueprint are the very visible outcome of this year’s consolidation stories in the UK. By adopting a new corporate entity, Ian Buckley and his colleagues are seeking to square a particular circle – to build a new modern brand in accounting and business services and to take advantage of the individual talents and reputations that made up those separate firms. The strategy also very neatly capitalises on the opportunity presented by the lack of viable exit strategies for partners.
The approach already begs questions. How will Tenon satisfy its directors and shareholders? How will partners make the transition to becoming directors and will the second-generation directors coming up through the ranks really benefit from the goodwill and reputation built up by their firms of origin?
But the traditional approach to consolidation doesn’t seem to be working – at least not in the last 12 months.
Grant Thornton’s and HLB Kidsons’ negotiations collapsed leaving clients and staff perplexed. Yet almost all of the mid-tier players have featured over the last few years in the formal dancing – the approaching and then backing off – of perspective merger and consolidation talks.
The scramble for size and market share is far from over. And what about the international marketplace?
For all its inherited probity and intellectual cachet, the accountancy profession is up against it when it comes competing on the global stage as business advisers and corporate financiers.
Nor does it come away with an entirely clean bill of health when we come to review corporate disasters – the Barings or the Polly Pecks – of the past few years.
With a nationally or internationally known name comes responsibility.
Maintaining reputation and standing in today’s markets seems to become steadily more difficult.
The key, many believe, is to re-establish standards of training and performance.
The Forum of Firms – an organisation made up of the Big Five plus Grant Thornton and BDO Stoy Hayward – is the latest attempt to take on this task and, importantly, to grasp the prize of self-regulation.
David McDonnell, formerly managing partner of Grant Thornton and now chief executive of Grant Thornton International, believes that the Forum of Firms will act as a catalyst to integrate international firms and that it will play a huge role enforcing high performance.
‘The Forum of Firms is forcing firms to deliver to a consistent standard. It is driven by the assumption that if a firm is using a high profile name, the world is entitled to believe that it is going to get one consistent standard,’ he says.
Very true. But if we look at our current top five and their moves to shed their consultancy arms – it is hard to avoid the impression that from the Big Five’s and the Forum of Firm’s perspective, the world’s entitlement to consistent standards is one thing. But their entitlement to the world – one not regulated by the SEC – is the over-arching goal.
- Liz Loxton is deputy editor of Accountancy Age. This is her fourth year of compiling our Top 50 league table.
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