ANALYSIS: Is the Big Four boom over?
Kieran Poynter's comments this week have opened debate about where the top firms are going.
PricewaterhouseCoopers has hit £2bn in revenues, but Kieran Poynter, its
boss, is saying the market is unlikely to go anywhere next year. With nothing to
drive revenues, is the Big Four boom over?
Maybe. The boom of the last two years has been driven by Sarbanes-Oxley work,
and also by mergers and acquisitions.
The Sarbox boost was a predictable phenomenon, whilst the M&A boom took
the firms by surprise. So in saying that there is nowhere obvious for the firms
to go, they may just be saying there is no banker, like Sarbox, to rely on. M
&A could still come to their rescue.
PwC’s transaction services revenue, which is likely to include due diligence
work for clients, increased fee income by 27% and interestingly came under the
assurance bracket – an area that saw overall growth of 11% to £952m. Corporate
finance work climbed 13% compared to 14% a year earlier.
What are the other firms saying? Deloitte reported at the beginning of
August. John Connolly, chief executive, says: ‘ “Calling” the market in the year
ahead is challenging. The first quarter of the financial year saw continued
strong growth in line with the previous year but the outlook remains uncertain.’
Connolly says M&A remains a great opportunity.
That is a theme that is emerging across the professional services. Salaries
for newly-qualified lawyers are thought to be soaring, as law firms struggle to
get hold of people to sign off the deals they are working on.
‘London is also increasingly a real centre of excellence for professional
services and as businesses in the developing markets (especially Russia, China
and India) access the capital markets through London we see good growth
prospects for our business,’ he says.
E&Y is also thought to be more bullish than Poynter. The growth in E
&Y’s advisory revenues is a key reason, and the firm is also optimistic
about M&A. It will report next month.
And what of KPMG? The firm is the growth star of the Big Four, with higher
growth last year than the other three. It has also scored one big hit in
stealing the Bank of England audit from PwC.
John Griffith-Jones, the chairman-elect, seemed at the weekend to be somewhat
non-committal about the idea of overtaking Deloitte, which it is trailing very
closely.
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Do we take that with a pinch of salt? It’s difficult to say. Let’s see what
happens when the firms announce 2006 numbers later this year.
As for PwC, there may be a better reason for the firm to be more sanguine
than anyone else.
As the top audit firm, it has most to lose from the FRC review into the audit
market, and the moves on choice and competition.
Ahead of the stakeholder meeting on Monday, PwC might be forgiven for
thinking the future is not as bright as it has been.