BDO MANAGING PARTNER Simon Michaels and his counterpart at PKF, Martin Goodchild, are pretty chipper when they speak to Accountancy Age.
Their announcement hours earlier that the two firms are to merge is the reason behind their upbeat approach to our conversation.
But we are interested in the nitty-gritty, the pragmatic side of squishing two firms together. Which brand disappears? How painful will the merger be? Who has actually acquired whom? And for how much?
The senior figures have the answers to the questions, some of which may be surprising.
For starters, no consideration has been paid in bringing the firms together. It is, as both parties are at pains to make clear, a “true merger”.
But it would be naïve to suggest that it equates to a 50/50 partnership: in the sense that Simon Michaels remains as managing partner of the enlarged business, and the PKF name is dropped for BDO. Goodchild will hold a “significant role” on the to-be-picked leadership team.
Putting that aside, the deal is, by all intents and purposes, set to go ahead.
A partner vote will take place later in the year, but as Michaels points out: “If we weren’t optimistic, we wouldn’t be talking today.”
As stated in their press release, it will create a firm that will employ 3,500 and generate revenues of £400m – not that they are counting, even when we suggest that the merger is about catching up to Grant Thornton’s coat-tails in fee income.
“I’ve never been interested in just numbers,” says Goodchild. “It’s about good client service.”
The thorny questions of number of redundancies and office closures are broached. “No, no, no,” says Goodchild emphatically.
“[This deal] hasn’t been driven by ‘needing’ to do it.”
Michaels says that there “will be some duplicated costs … some where we operate in the same towns, some overlaps … these sort of things”. But he backs Goodchild’s point, in that the deal is not being undertaken to drive synergies.
Feedback from PKF clients and partners has been good, and Goodchild believes the client service ethic is the key ‘cultural’ link that the two firms share.
The new business expands its reach, be it geographically, or by specialism. PKF is strong in not-for-profit and consulting. It also affords BDO geographical reach into the Midlands and further north.
The firms make what seems a grand claim, in that they describe the deal as the first “proactive strategic merger” since Price Waterhouse and Coopers & Lybrand merged in the late 1990s. By definition, this suggests the Grant Thornton/RSM Robson Rhodes deal doesn’t fit into that category.
When asked about how the BDO/PKF deal compares with GT/Robson Rhodes, particularly if they will feel the pain that GT went through in bringing the two together, the first signs of slight agitation emerge from the two senior partners.
“You can’t compare the two transactions … or those of Tenon … it’s a fundamentally different deal. That’s what makes this exciting,” says Michaels.
“The merged firms’ primary focus will be on driving revenues, and getting the deal integrated. We both run sensibly financed businesses … we’ll run for the long term.”
More mid-market deals will follow, suggests Goodchild. But the latest deal is made “out of a position of strength”, which suggests those of other players might be more of necessity, or survival.
And Michaels keeps the door open for other forays into the market for BDO. “We will be open-minded on other deals,” he says.
He points out that BDO expectantly awaits the Competition Commission’s report into the workings of the audit market. With the new firm in a very strong position in terms of mid-market coverage, the commission’s suggestions could open up more work for BDO and its counterparts in the FTSE 350.
“We have an appetite to invest, and hope the door will be opened,” says Michaels.
Picture L-R: Martin Goodchild and Simon Michaels
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