The latest IAB World survey reveals that the overall growth among the 45 top international networks and associations is down for the first time since 2009.
The average growth was 6% with networks and associations overall earning $165bn in fees.
Networks have had a more successful year with average growth at 6%, 8% in 2011.
18 out of the 22 networks surveyed grew revenue in 2012, down from 21 in 2011. Out of all 45 surveyed networks and associations, 23% reported a decrease in revenues and only 11% reported double digit growth, down from 27% in 2011.
The market was challenging for associations, with growth flat and 20% of association reporting a decrease in revenues. There have been almost no year-on-year changes in market share within the Big Four, which between them accounted for 67% of market fee income, up from 66% in 2011. The Big Four and the other 18 global networks took 88% of market share between them, leaving associations with 12%.
PwC retained its position as the largest global network, a title that has only been broken once, when Deloitte took top spot in 2010. The gap between Deloitte and PwC has decreased to $210m, however. The gap between third-ranked Ernst & Young and fourth-placed KPMG has increased significantly this year to $1.4bn, compared to only $170m in 2011. This is mainly down to KPMG reporting only a 1% increase in revenues in the face of challenging market conditions, and reporting later in the year than its Big Four counterparts.
2012 saw a surge in M&A activity among the larger mid-tier networks, with BDO International merging with PKF International’s firms in Australia, China and the UK. In order for PKF International to retain its status as an international network it has to secure replacement firms, however as of yet there has been no announcement. Some 11 Firm leaders interviewed by IAB for the survey said M&A discussions – at least in their initial stages – were occurring with much greater frequency worldwide, and predicted that mergers on the scale of BDO UK and PKF UK were almost certain to occur more often in 2013.
Ana Gyorkos, Data and Analysis Editor of IAB, comments: "Continued fee pressure, squeezed margins and the increasing cost of standard and regulatory compliance has led to increased M&A activity. Especially in the developed markets M&A is the only way of significantly increasing market share, particularly for mid-tier networks, and increase margins as well as provide an alternative to the Big Four."
In terms of service lines, firms saw continued pressure on audit & accounting services, with advisory – and to a lesser extent tax – being the service lines bringing in organic growth.
Worldwide, firms in Turkey (35%), China (28%) and India (20%) enjoyed the strongest average growth in the past year, as networks and associations invested heavily in these key emerging economies.
The IAB survey also found global leaders observing that market concentration debates such as the EU’s audit reform discussion, the US Public Company Oversight Board mandatory rotation debate and the Competition Commission inquiry in the UK had all led to changes in client behaviour. More and more public companies, they said, were thinking more seriously about retendering, examining their auditors and starting to consider the mid-tier, especially for tax and advisory work.
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