Coopers & Lybrand and Price Waterhouse signed on the dotted line in July after successfully leaping a series of regulatory hurdles.
PricewaterhouseCoopers, as the new giant was christened, proclaimed the exercise a triumph. Aside from replacing the phrase Big Six with Big Five, the merger created the UK’s largest accountancy firm.
With around 1,000 partners and estimated annual fee income of #1.3bn, PwC is almost twice the size of its nearest rival KPMG. Worldwide, PwC claimed the merger had created a global giant of 140,000 staff in 152 countries, generating annual revenues of #9bn. But the process has not been without its trials and tribulations. PwC has lost a disputed number of clients. It also finally lost a number of partners, particularly in Spain and South America, where it lost some of its operations to Andersens.
The announcement of the merger sparked controversy when it was unveiled in September 1997, and critics continued to attack it throughout 1998. Vocal concerns that the move would restrict competition in the audit market reached fever pitch when KPMG and Ernst & Young announced their attempt, aborted in February, to join the merger roller-coaster.
Supporters of the ‘big is beautiful’ camp argued increased size and global coverage would be an advantage in these days of international corporate mega-mergers. But opponents said the moves would lead to a dramatic diminution in competition and sharp rises in prices.
Claims in the Hemscott Company Guide in September this year, that the new giant had suffered a pre-merger ‘haemorrhage’ of ten clients, were hotly denied by PwC. Post-merger, the firm has been under the spotlight as critics watched out for further signs of client fallout. They were rewarded in November, when Abbey National announced it was dropping PwC in favour of Deloitte & Touche, explicitly blaming the concentration of banking and finance audits in PwC’s hands for its decision.
PwC has since rigorously defended itself against suggestions that other post-merger client losses, such as that of Diageo in October, resulted from the merger. But speculation persists that it may lose more clients as companies come to the end of their accounting periods.
Other difficulties of running such a gigantic operation were under-lined earlier this year, when the British Horseracing Board sacked PwC after it emerged consultants had penned a report critical of the organisation, completely unaware that it was also an audit client.
PwC’s smaller rivals, both in the Big Five and the mid-tier, have been reveling in its discomfort and hoping to pick up clients from what they argue is a fallout of disillusioned clients. But, with a client base consisting of over 550 listed companies and claims it has gained ten clients since the merger, in terms of sheer size, PwC has a commanding lead over its opponents. It may not therefore be too concerned about losing the odd one or two.
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