Accountancy 
firms BDO and 
PKF to merge

The move will create the sixth largest accountancy and professional services firm in Britain, although analysts stressed it was not big enough to challenge the dominance of the major players in the auditing world.

The combined operation will employ around 200 staff in Yorkshire, and the merger is expected to be completed by the spring of 2013. The merged firm will operate under the BDO brand.

A BDO spokesman confirmed that there were likely to be a small number of job cuts arising from the merger.

The merged firm will be a member of BDO International, which has revenues of more $6bn and operates in 138 countries.

Simon Michaels, the managing partner of BDO, said: “This is transformational, for our two firms but also the broader market.”

A spokesman for BDO said: “Both firms reinforce their commitment to the Yorkshire and Humber area.”

The merger means that PKF’s office in Sheffield, which employs around 30 people, will operate under the BDO brand from early 2013.

Next year, PKF and BDO’s offices in Leeds, which employ around 50 and 120 people respectively, will be based in the same office. Ian Beaumont will continue to lead BDO’s team in Leeds.

The spokesman said: “We are not looking for new office space, but we will be able to confirm more details about the co-location in the New Year.

“We do not envisage any reduction in fee-earning roles, or in PA and secretarial roles.

“There may be limited reductions in the number of locally-based operational and administrative roles, where merged offices result in duplication.

“The merger is designed to build on our shared commitment to client service so we won’t be doing anything that detracts from our teams’ abilities to deliver exceptional service.”

In recent years, some analysts have expressed concern about the lack of competition at the top end of the UK auditing sector.

In September, the competition watchdog said its probe of the market for company audits had not uncovered any evidence of collusion among top accounting firms over market share.

It was the Competition Commission’s first significant comment since it formally launched its investigation last year, with the preliminary findings due to be published in early 2013.

The probe looks at how the country’s top 350 listed companies buy audit services, and the commission’s working paper analysed whether the Big Four accounting firms – KPMG, Ernst & Young, PricewatershouseCoopers and Deloitte – had an understanding over dividing market share.

“Accordingly, whilst many of the market conditions conducive to tacit collusion in relation to market share appear to be satisfied, we do not currently have the further evidence necessary to establish that there has been tacit coordination, ” the commission said.

The paper will have been welcomed by the Big Four, who check the books of nearly all of Britain’s blue chip companies. The Big Four firms have argued that the market is already highly competitive, with frequent tendering processes and rising pressure on fees.

Professor Peter Moizer, the Dean of Leeds University Business School, said yesterday: “The reality is that the Big Four are so big that this (the BDO and PKF merger) will make no difference.

“There are three layers within the accountancy profession – the Big Four, the middle tier and the smaller firms..The middle is getting squeezed. It’s tough for them.”

A decade ago, the financial world was rocked by the collapse of Arthur Andersen, the accountancy giant which became embroiled in the Enron bankruptcy scandal.

Prof Moizer, who is a former reporting member of the Competition Commission, said: “The Big Five only became the Big Four because Arthur Andersen crashed out following the Enron scandal, it wasn’t (brought about by) a choice. From a competition perspective, the Big Four are almost too big to fail, as there is an element of competition between them. It’s a tough market and most of the money (for the Big Four) doesn’t come from audit, it’s the rest of the services.

“PKF was being squeezed in a tough financial world. I see the number of middle tier firms reducing in the future as they try to create economies of scale. It’s always been a dream to create a fifth big firm, but it’s so difficult to do that organically without some form of Government intervention.”

A partner at a Big Four firm said: “The market they are operating in is as ferocious as it gets. There is a huge amount of fee pressure from clients. You can understand the logic in putting the two businesses together to drive economies of scale and become more efficient.

“But the market will continue to be very tough and you can expect to see more consolidation in the future.”