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April 30, 2008

BDO managing partner says UK mid-tier grouping is obsolete

By Nicholas Moody

BDO managing partner says UK mid-tier grouping is obsolete

The head of the sixth-largest accounting firm in the UK said Grant Thornton UK and BDO Stoy Hayward have broken away from the rest of the UK mid-tier firms and should no longer be grouped with them. At the same time, another mid-tier firm has warned that focus on size alone is dangerous.

BDO Stoy Hayward managing partner Jeremy Newman said to associate Grant Thornton and BDO Stoy Hayward with the rest of the mid-tier perpetuates a category that no longer exists. “If I look at the sort of work that we do, who we are competing with, we are invariably competing against the Big Four or Grant Thornton and not very much against the rest, frankly, and I’m sure the same would be true of Grant Thornton,” Newman said.

Newman made the comments when asked about Grant Thornton’s jump past BDO Stoy Hayward to become the most profitable UK firm outside the Big Four (see IAB Country Survey: The marches on). Grant Thornton’s pro forma net fee income rose to £389 million ($787.7 million) for the financial year ended 30 June 2007 following its merger in July with RSM Robson Rhodes. BDO Stoy Hayward posted 10 percent growth in its national turnover to £317 million revenue for the same period.

League tables not most important

Newman said he remained unconcerned by Grant Thornton’s leapfrogging of BDO Stoy Hayward. He said while he accepted that league tables were important, showing enough breadth and depth was also important. “I think two firms have broken away [from the mid-tier] and whether we are the bigger of the two or the smaller of the two at this moment in time is not relevant. On a global basis we are clearly the bigger of the two… provided I’m where I need to be, I’m not overly concerned,” he added.

Grant Thornton chief executive Michael Cleary said it didn’t matter if his firm were four, five or six of seven on the league tables – the firm had no intention of becoming the weakest member of a Big Five. “What matters to us is that we are leaders in the marketplace we want to serve, so if you take the top 2,500 private companies in this country we are probably number three or four. If you take entrepreneurial companies going to the [Alternative Investment Market] we’re number one; take public sector audit like Manchester City Council, we’re number one; so what matters to us is leadership in a market, not the league table,” he said.

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  However, Mazars’s head of public interest markets, David Herbinet, said he was concerned there was so much focus on size in the UK. “We are starting to see some consolidation in the market and we are starting to see the next two firms after the Big Four have a go at each other in terms of who is going to be bigger than the other. I think that is very unhelpful; big has never meant anywhere better,” Herbinet warned.

Herbinet said there was a danger that the markets were going to push audit firms onto a path that was not going to generate the value that the market wanted.

He said: “You end up with firms that have two-thirds of their business in fund management being in the top league and I think there are a lot of dangers of focusing on size alone. If you’re really serious about working with large international businesses, it is something that you develop over a number of years; it is not something you create overnight by a big merger.”

Nicholas Moody

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