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BDO and Moore Stephens UK to merge, but gap to Big Four remains

BDO is set to overtake Grant Thornton in the UK after it revealed plans to merge with Moore Stephens’s UK firm were in an advanced state.

Although the deal should see BDO become the fifth largest firm in the UK, there will remain a significant gap between it and KPMG, the smallest of the Big Four.

In its most recent results, Moore Stephens LLP reported £137.5m ($176.65m) in revenue and £24.1m profit. BDO UK reported £464.1m, meaning if the two combined without losing anyone by the wayside, the combined firm would have revenue just north of £600m.

However the deal only consists of Moore Stephens London, Birmingham, Reading, Bristol and Watford offices, out of its 37 offices.

As a result, once the deal is completed, BDO said it expects the combined firm – which will take the BDO brand – to post annual revenue of £590m.

Commenting on the merger, Paul Eagland, Managing Partner at BDO UK, suggested the deal would help BDO compete for larger clients. He said: “In the last 12 months – in the wake of Carillion and the subsequent focus on competition in the audit market – the UK market now has a better appreciation of BDO’s capability and quality. This deal increases our credibility further and proves our commitment to competing in the top-end of the market.”

The Moore Stephens merger will certainly help BDO expand in the AIM market: Moore Stephens UK had 24 audit clients here. If all these clients come across to BDO, this would give the new firm 173 AIM audit clients, compared to second place KPMG’s 126. 

However Moore Stephens UK does not have any FTSE 350 clients, and the combined firm would remain far short of KPMG UK’s reported revenue of £2,172m for 2017.

Eagland added: “We’ve always said that size isn’t a proxy for quality. A driver of this merger is one of sustainable and profitable growth that benefits our clients, people and capital markets alike.”

Simon Gallagher, Managing Partner at Moore Stephens said: “To be entering final discussions to create the largest UK accountancy firm focused on entrepreneurially-spirited and fast-growing businesses is exciting – and critical for market competition. The proposed merger provides a platform for continued, sustainable growth, as well as offering something different to the market at this important time.”

In the IAB 2017 UK rankings, Moore Stephens was ranked 9th, meaning a top ten spot will soon become available. There was less than £7m between 11th placed Crowe and 13th placed PKF International, meaning the race for the final top ten spot could become competitive.

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