This year, the International Accounting
has produced its inaugural list of the 100 largest
professional services firms in the world. Nicola
discovers that although growth was solid, firms are
now starting to feel the pinch of recession.

The world’s largest 100 firms maintained steady growth in 2008
despite the ominous clouds of recession. In most markets, firms
recalled tougher trading climates, an increase in the demand for
counter-cyclical services and the downsizing of corporate finance

There was some fee pressure, although this
problem is gaining much greater significance this year.

In most markets there has been a slowdown in
recruitment and some job cuts within large firms. This has occurred
in many parts of the world, including the fast-growing superpower

Deloitte US is the world’s largest firm in
terms of fee income, reporting revenue of $11 billion in year to 31
May 2008. The firm also has the largest workforce, which grew by 9
percent to 44,825 last year.

Ernst & Young (E&Y) US is the
second-largest firm with fee income of $8.07 billion, up 6 percent,
while PricewaterhouseCoopers (PwC) US is in third place with fee
income of $7.58 billion, the result of modest 2 percent growth.

Although Deloitte has the largest firm in the
world, PwC has the most firms in the Top 100 with 21, followed by
KPMG (17), Deloitte (16) and E&Y (15). Of the mid-tier networks
and associations, Praxity has the highest number of representatives
with six, followed by BDO International with five.

RSM McGladrey + McGladrey & Pullen, placed
12th, is the largest mid-tier firm and reported combined fee income
of $1.4 billion for the year to 30 April 2008. The position of
America’s fifth-largest firm in next year’s Top 100 could be
affected by plans to severe the working relationship between the
audit firm McGladrey & Pullen and the business services arm RSM

Grant Thornton US, placed 14th, is the
second-highest earning mid-tier firm in the Top 100. Its fee income
grew by 8 percent from $1.1 billion in 2007 to $1.2 billion in the
year to 30 September 2008.

Chief executive Edward Nusbaum says that in
2008 the firm began feeling the effects of the economic downturn
despite posting positive growth. He notes the firm had
“surprisingly” strong growth across tax, in particular public
sector and global engagements. There was also good growth in
restructuring, bankruptcy and government consulting.

“Corporate advisory and restructuring services
consisting of bankruptcy, turnaround, restructuring and everything
related to that is up by 35 percent. Our government consulting
business is up 10 percent and international tax is up by between 5
to 10 percent,” Nusbaum says.

The most rapid growth of 2008 was enjoyed by
PricewaterhouseCoopers Aarata (86th), which grew revenue by 165
percent to $231 million. Deloitte Germany (17th) also had
substantial growth, increasing its fee income by 35 percent to
$1.07 billion for the year ended 30 June 2008.
PricewaterhouseCoopers Netherlands (18th) grew 29 percent and US
firm JH Cohn (90th) increased revenue 27 percent, the highest
growth among the mid-tier.

Leading firms in the UK are weathering
difficult trading conditions, noting a downturn in transactional
activities but an increase in counter-cyclical services such as
restructuring, insolvency and corporate recovery.

KPMG UK is the seventh-largest firm in the
world. Chairman John Griffith-Jones says the transactional space
has been “absolutely classical”.

“Due diligence, M&A, corporate finance and
tax related to all of the above is a cyclical business, so that has
gone down. The counter-cyclical ones, such as corporate recovery
and forensic, have increased and we are busy working on compliance
stuff around the financial sector,” he says.

In 2008, the impact of the credit crunch
failed to contract the UK market, but growth was slower than 2007.
Total fee growth increased 9 percent to $10.6 billion for

The Chinese professional services market
endured a far easier financial year than its European counterparts.
Firms reported 20 percent growth and the Big Four has been
aggressively building service capabilities across all business
areas. Only the Big Four in China are represented in the Top 100

In terms of headcount, China’s largest firm
would figure in the Top 10 as it is estimated PwC China (35th) has
about 11,000 employees.

German firms suffered flattening audit fee
growth as competition increased in 2008. Corporate finance demand
dropped while tax and restructuring work provided some highlights
for firms.

KPMG Germany head of audit and board member
Joachim Schindler says the rapid deterioration of the economy since
September 2008 made the environment very uncertain, which clearly
affected audit firms. Despite this, KPMG maintained its position as
the 10th-largest firm in the world with $1.73 billion for the year
to 30 September 2008.

For Brazilian professional services firms, the
2007/2008 financial year was one of high demand, new innovation and
record growth. Increased regulation drove the demand of audit and
advisory services.

An important change in regulation was made by
the Brazilian National Monetary Council and the Central Bank to
eliminate the mandatory rotation of audit firms for banks and to
suspend audit firm rotation for listed companies until 31 December

“This is, finally, a good movement toward
global best practices that shows that the Brazilian government is
actually moving towards convergence,” PwC Brazil partner and
management board member Henrique Luz says.

A common trend among Top 100 firms has been
building restructuring and business recovery practices while
downsizing corporate finance practices.

The demand for corporate finance work has been
a casualty of the economic downturn as liquidity in most markets
dried up, stifling M&A activity.

Firms in more mature Western markets, such as
Europe and the US, scaled down or re-deployed corporate finance
talent to help mitigate reduced demand.

One notable exception was Australia, where the
M&A market had been described as “hot” in 2008.

PwC Australia, the largest Asia-Pacific firm
placed 20th, experienced advisory services growth of 15 percent.
This was partly due to the fast-moving M&A market, according to
chief executive Mark Johnson.

“Essentially we achieved growth across the
board in all our businesses but slightly faster growth in those
[services] aligned to the hot M&A market,” Johnson

PwC Australia posted fee income of $1 billion
and growth of 12 percent for the year to 30 June 2008.

PwC Australia had strong double-digit growth
in the first quarter of the 2009 financial year but it was really
only after Lehman Brothers collapsed in the US that the global
financial crisis really hit home. PwC Australia’s 2009 financial
results have just been published and the firm grew revenue 1

“All the gains we made in the first quarter
were largely given up through the rest of the 2009 financial
year-end,” Johnson explains.

“[But we have been able to] sharpen our
strategic compass. When every part of your business is growing
really well it is hard to make choices and I think the toughness
that has happened in 2009 has forced us to pause, reflect and get a
bit more focused about our strategy and identify the choices we
need to make.”

Although Grant Thornton US has yet to publish
its 2009 financial year-end results, Nusbaum believes the firm’s
revenue will remain flat due to the tottering US economy.

The very nature of the Top 100 firms is also
evolving as national practices join forces. In the past few years,
the Big Four have been marketing their businesses as closely
integrated structures.

KPMG created a Europe firm that will soon
comprise of 13 member firms (see KPMG Europe to expand
). The combined European firm has 30,000 partners and
staff working from more than 100 offices – with net revenues of
€4.6 billion ($6.5 billion).

E&Y consolidated the operations of its
member firms across Europe, the Middle East, India and Africa
(EMEIA) to create its EMEIA practice, which is made up of 87 firms.
In March, E&Y went a step further and set up a European limited
liability partnership within its EMEIA practice, with 700 partners
joining from 45 European countries.

A year ago, PwC revealed plans to adopt a more
integrated global structure comprised of three geographical
clusters. Johnson said the restructure helps firms better serve
clients with international needs.

“We have seen a trend in increased investment
into Australia by Asian firms,” Johnson says. “The good news for us
is we have a very strong practice in China, Taiwan and Singapore
and they are the key markets for investment from North and
Southeast Asia.”

Consolidation is a trend that is likely to
continue among the Big Four, and although this report has separated
firms into their legal country practices, this approach could
change as the market evolves and firms are replaced with regional
super-firms. The Top 100 may never be the same.

The people problem