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November 27, 2014

Merger spree boosts BDO revenue

By Isabella Grotto

BDO registered an annual total fee income increase of 8.81% to US$ 7.02bn in the year ended 30 September 2014, growth it attributed in part to the 28 mergers it completed over the past 12 months.

Audit and accounting made up 57.5% of total fees with $4036.5m, up from $3,824.9m in the past financial year. Meanwhile, advisory contributed 21.9% at $1,537.38m and the tax service line totalled $1,446.12m at 20.6% of total revenue, up from $1,328.7m and $1,294.45m respectively in 2013.

BDO chief executive officer Martin van Roekel told International Accounting Bulletin: "We are very proud to see that for the first time in our history we have exceeded the $7bn mark an increase of 8.8%.

"We haven’t seen the growth rate of the other networks," he admitted, "but if I compare with the growth of three of the Big Four (between 5.7% and 6.8%) I think we have done a pretty good job."

Reflecting on the network’s growth, van Roekel explained: "It comes partly form M&A and partly from organic growth.

"It is interesting to see that firms that have been able to do M&A have also realised an organic growth," he added.

With acquisitions across Fiji, Réunion Island, Bangladesh, Papua New Guinea and Sierra Leone, and existing offices’ expansions in Laos, Afghanistan and the Maldives, the network brought the total of countries it is present in to 151.

In terms of staff, the series of mergers increased BDO’s global headcount by 5.4% to just under 60,000 total partners and staff, working across the 1,328 offices of the network’s 110 member firms.

Van Roekel told IAB: "We are very pleased with the 28 mergers realised in the past 12 months as it confirms what we have been saying in the past two years that we foresee a consolidation in the mid-tier networks; saying something is one thing, when it’s realised of course it confirms that our expectation was the right one."

Two areas leading organic growth for the network are the US and China.

In the US, the network reported revenues of $833m in the financial year ended 30 June 2014 and completed four acquisitions throughout the past twelve months, including Pittsburgh-based accounting firm Alpern Rosenthal and Texan firm Hartman Leito & Bolt in Forth Worth.

"If I look at the M&A that have been realised until end of September it is pleasing to see that in the past couple of weeks we have seen two very interesting M&A in the US," commented van Roekel. "Taking into account the discussion going on in a number of countries by our member firms we expect that trend to continue in the current year."

Indeed, earlier this month BDO US further announced a move to acquire UHY Texas; the transaction is expected to be completed around 1 December. The network also added firm SS&G and subsidiary SS&G Parkland to its network, expanding its operation in the Midwest.

It is also in light of these developments that van Roekel told IAB: "We expect that in some years from now there will only be two or three truely global mid-tier networks in the market. And based on what is happening our expectation is the correct one."

In China, meanwhile, BDO revenues witnessed 16% growth and took advantage of favourable economic conditions in the People’s Republic to complete four mergers.

At the same time, BDO International and BDO China recently invested in a shareholding in BDO Hong Kong, the first step towards integrating the network’s Hong Kong and China firms, effective 1 January 2015.

According to Van Roekel, the network’s performance in China is indicative of a wider, successful trend across emerging economies.

"China is a prime example," he explained. "The switch to a service-led economy provides real opportunity and we are already bigger here than EY and KPMG. This is part of the reason for the network’s sustained growth and in turn gives us the momentum and power to lead the consolidation of the mid-tier and continue our cycle of expansion."

Looking to the coming years, BDO is gearing up to both fight its corner in a consolidating mid-market and grow its clout to rival that of the Big Four.

"At BDO, we are actively increasing our presence in the US, a ‘re-emerging’ economy, and also in the emerging markets that we know are central to our clients’ growth strategies," he explained, "This is part of the reason for the network’s sustained growth and in turn gives us the momentum and power to lead the consolidation of the mid-tier and continue our cycle of expansion.

"By 2018 we predict only two or three substantial mid-tier networks with a global presence will be left standing."

 

Related articles:

BDO US expands in Texas

BDO US acquires Midwest firm

BDO US revenues grow by 22%

BDO China and BDO Hong Kong near integration

 

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