The Brazilian Competition Authority (CADE) has approved KPMG’s acquisition of BDO Auditores Independentes and BDO Consultores in Brazil, two years after the deal was first announced and questions were raises over the effects such a deal might have on audit market concentration.
As a result of its investigation the CADE imposed some restrictions on KPMG Brazil and issued recommendations for the rest of the Big Four.
The remedies for KPMG include a restriction on acquiring any auditing firm in Brazil with clients with revenues of BRL300m ($131m) or more per year for a period of two years. Once this period is over, in the following two years KPMG will have to inform the CADE of any acquisition of firms in Brazil with clients generating more than BRL350m in revenues.
CADE adviser Eduardo Pontual Ribeiro, who handed the case, said this measure is aimed at prohibiting a concentration in the audit market.
Ribeiro also recommended to the superintendent of the CADE to ask the other three of the Big Four in Brazil – Deloitte, EY and PwC – to notify the CADE if they undergo any similar acquisitions (firms with clients earning over BRL350m), however this is only a recommendation for the time being.
BDO welcomed the CADE findings and said the watchdog "recognised that this action raised serious competition issues that needed a major investigation and significant remedies".
BDO chief executive Martin van Roekel said: "It is regrettable that the CADE was not able to identify a structural remedy that would have complemented the behavioural remedies and could have served to fully restore effective competition to the audit sector in Brazil".
BDO global head of regulatory and public policy Noel Clehane added: "We are hopeful that the parties concerned will comply with CADE’s proposals in order to ensure that competition in the audit sector in Brazil does not suffer any additional harm. The proposed acquisition of the KPMG firm in Denmark by EY shows the need for continued vigilance on the part of competition authorities everywhere to prevent even higher levels of concentration in the audit market".
The case initially came about following the acquisition announcement by KPMG in 2011after which BDO filed a complaint to the CADE in an attempt to halt the buyout.
Prior to KPMG’s acquisition of BDO’s firms in Brazil EY acquired Terco, a former Grant Thornton International member firm in Brazil, which meant two of the largest mid-tier firms were bought out in a space of a year by two of the Big Four firms.
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