The past year was a solid one for the 52 networks and associations survey by International Accounting Bulletin with their combined revenue increasing by 6% to $181.7bn.
Organic growth on the back of investment coupled by M&A seems to have been the successful formula for many as they adapt to operate in the more volatile conditions of this decade.
Improved growth and shrinking economic concerns have given way to other worries, which have more to do with societal and geopolitical issues. As EY chairman Mark Weinberger rightly notes, external challenges include the rise of nationalism around theworld, which could have a tremendous impact on businesses as a whole and accounting firms in particular.
Internally, international networks and associations will have to outline their corporate philosophies clearly in order to attract and retain talent – a highly valued commodity in many markets, as well as ensure they keep their member firms happy and don’t lose them in a fierce transactions market.
Looking at the top five networks (the Big Four plus BDO) in the past 10 years, they have successfully grown from businesses with combined fee income of $64.7bn in 2004 to $127.3bn in 2014, a 97% increase in a decade. While revenues were smaller in 2004, the gaps between the top five were somewhat more proportionate (see the table below). With Deloitte and PwC remaining the leading networks by fee income, the difference between the second and third ranking Big Four firm stood at $1.9bn in 2004, but has increased to $6.5bn in 2014.
The gap between the smallest of the Big Four and the mid-tier’s biggest, BDO, was never small, but it increased by $7.3bn in a decade, from $10.5bn to $17.8bn.
Many firm leaders speaking to the IAB from around the world tend to use the term the Big Two in their markets and the global trend seems to indicate their statements might not be so far-fetched.
Additionally, the gap between the large players and the mid-tier widens, despite BDO’s climb from $2.9bn to just over $7bn in the ten-year time period.
With the fundamental question of the EU’s audit reform and the UK’s competition enquiry focusing on the competitiveness of the market and the ‘too big to fail’ question, it seems contradictory to see the market evolving towards one featuring even bigger gaps between the top players.
Perhaps the EU’s audit reform and its 83 options to choose from by member states will offer some additional opportunities to the mid-tier market; however it could also easily be argued that it might just result in implementation inconsistency across the EU leading to little change to the market.
by Ana Gyorkos & Vincent Huck