Editorial – When two into one doesn’t go

So the plan to create the largest accountancy firm in the known world is off. Speaking minutes after the news broke, Nick Land, Ernst & Young’s senior partner said his firm’s merger with KPMG had foundered on cost, regulation and client hostility. Fighting to be heard amid a metaphorical chorus of ‘We told you so’, Land said it had all proved far harder than anyone had imagined.

From the start the question hanging over the KPMG/E&Y merger was why it was worth doing at all. Despite broad hints that the two firms had been talking for months longer than their merger rivals at Price Waterhouse and Coopers & Lybrand, there were accusations that it was just a grand spoiler. Even as it was being levelled, that charge looked unconvincing.

The sheer cost of preparing the merger proposals, to say nothing of consulting partners and drafting submissions to the European Commission, would have made it one of the most expensive spoilers on record.

The truth is likely to be much more prosaic. A lot of work went into the merger before E&Y decided to pull the plug. At best that looks like a brave decision. At worst the whole plan looks like a misjudgment.This was certainly not the first accountancy merger to end in tears. But being so high profile its failure will not have done either firm’s reputation any good. Accountancy firms are meant to know about things like business strategy and getting their own wrong will hardly inspire the confidence of clients.

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