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Uptick in mergers sees number of accountancy firms fall

CONTINUED consolidation has driven down the number of accountancy firms in the UK from 6,962 to 6,622, new research has revealed.

The rate of consolidation – down 41% since 2002 – is now beginning to accelerate again following a slowdown since 2010, says LDF, an independent finance provider. A key driver of the renewed fall is the rising number of mergers among accountancy firms, as they attempt to benefit from economies of scale.

According to LDF,  small and mid-sized accountancy firms appear to be merging in order to compete with larger firms by reducing administrative costs and increasing their profit margins. 

LDF said some firms are merging to diversify their portfolios away from certain kinds of audit or tax planning work. January 2016 sees the introduction of higher thresholds for businesses requiring an audit, while government is putting greater pressure on what it sees as ‘aggressive’ tax avoidance.

Peter Alderson, managing director at LDF, said: “Mergers have been the catalyst for many accountancy firms to start the next stage of their growth, as it gives them the wherewithal to invest in better marketing and IT systems. As the market recovers, more firms are looking to take advantage of that.”

“Merging with another firm that has a different geographical, sector or service line focus can strengthen both practices if the fit is right. Especially for smaller businesses, merging with a larger firm can expand your client base and increase revenue streams.”

Several notable mergers of accountancy firms in the past year include top-ten firm Moore Stephens with top-25 firm Chantrey Vellacott, Menzies with Harris Lipman, and Yorkshire outfits BHP and Clough, creating a new top-40 firm.

There was a 6% drop in the number of sole practitioner accountants in the last year, from 3,625 to 3,421.

Alderson added: “There is also a consideration for any accountants nearing retirement who may also be looking to sell their books of businesses to firms who may be looking to diversify their client base.”

The figures – sourced from the Financial Reporting Council (FRC) – relate to the year December 31 2014.

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