It was announced today that BDO and Moore Stephens are in “advanced discussions” on a merger. The new firm will have combined revenues of approximately £560m, which takes it ahead of Grant Thornton into fifth place but still only a quarter of the size of KPMG, the smallest of the Big Four. It will have 264 partners and 5,000 total staff members.
Why Moore Stephens and why now?
BDO and Moore Stephens have spent time together. We are talking about a group of like-minded people who think that we are better off together. So it was a great cultural fit. That’s the first point – point number two is the strategic fit. A combination of the two will create the leading firm focussed on that mid-sized entrepreneurial business. That is a really important and exciting part of the economy, as we see it. Point number three is of course when you think about the timing, it creates a new force to compete on audit reform. If you roll forward to June/July 2019 we would expect all of the various reviews to have concluded and a whole series of recommendations which we think will lead to market change. And we will be able to capitalise on that.
Did the current moment in the profession - with so many reviews ongoing and debate over competition, quality and the Big Four - drive your decision-making on this deal?
It definitely gave us that third leg. The first being the cultural fit and the second the opportunity to become the leading firm for mid-sized businesses. We recognise that one way or another the world is changing, particularly under that heading of quality. You need to be able to demonstrate that you’ve got that global reach and domestic capability to audit some of the most complex businesses and give the stakeholders assurance. That was something we thought we would definitely be able to do better together.
How long has this deal been in the pipeline?
We started to speak with one and another about four or five months ago. What was very refreshing and positive about those conversations is that we hit it off early on. Then we sat down and said if we can really put some shape to this, that looks good to both partner groups and firms and clients, lets do it. We were able to work out a really clear set of principles very early on. Over the last three months we’ve made sure to engage with stakeholders. Particularly with all the governance in partnerships.
Is BDO interested in more acquisitions or mergers in 2019?
If you look at the statistics for BDO International you will see that over the past two years it has merged with and acquired numerous practices round the world, which has helped fuel our global growth. We’re going to be at around $9bn [revenues] by the time we publish our next set of global results. So globally there will be more activity.
Locally in the UK, as we’ve said to many firms, we’re really excited about the future. We’ve got a fantastic global organisation to leverage from and we always love to speak to people who think that by combining forces we’d all be better off. We will continue to have conversations and enjoy those conversations but equally respect that different people want to do different things.
Do you think there is going to be a trend towards consolidation in the accountancy market?
Yes. I think there has to be because of the global price for investing in things like software and ERP systems. BDO International just spent over €100m on the latest version of our latest global audit methodology. Unless you’re part of an organisation that’s got those investment monies you will fall behind. Either because the regulators will continue to demand better systems and better quality, which makes sense. or [because] the clients say that if you don’t have that methodology then you just won’t be invited to tender.
Has BDO considered a merger with a firm of a similar size – Grant Thornton or RSM – to compete with the Big Four?
It’s an interesting question, isn’t it? As the larger firms in the mid-tier start to engage with one another, one of the issues that has to be addressed is the global position. Ideally, if you were being objective, what you would do is encourage two of the mid-tier global firms to think about a global merger. So logic dictates that people will have conversations on that.
We are always interested, because I sit on our global board, in speaking to like-minded networks and global firms. But of course you need a lot of things to be perfectly synchronised to achieve that. That’s why a lot of the activity today is still on a local level – but over the next three to five years that will change, if not sooner.
Will you be going for FTSE 100 clients now?
First of all we’ve got a fantastic position in the market. Particularly if you look at our AIM statistics, where we’ve been number one auditor.
When we look at any opportunity, whether that is audit or non-audit, we are quite discerning. To the extent that we are invited to tender, then we pitch, that we know there’s real possibility of us being appointed. That is the fundamental principle we’ll continue to follow. We’ll have very grown-up conversations so that when we’re invited it’s for the right reasons and we know that we have the capability to deliver – whether that’s FTSE 100 or FTSE 350.
How will Moore Stephens be incorporated into the leadership structure?
Simon Gallagher and John Randall, current managing partner and COO of Moore Stephens [respectively] will join the BDO board. We will have a combined board consisting of the top management brains from both firms. Additionally there will be representation on other boards and committees to make sure that we get the balance of the merger right.
What needs to happen between now and Spring next year - when you say the deal will be completed?
It’s pretty straightforward. It’s making sure that [we have] any clearances we need from regulators – which we’re not expecting any problems with.