BDO and Moore Stephens said their firms in the United Kingdom are in advanced merger discussions, potentially creating a rival to the Big Four in the U.K. audit market.
The combined firm would focus on advising entrepreneurial midsized businesses in the U.K., but would also be in a strong position to challenge the Big Four firms for more complex audit, tax and advisory work. The Big Four have come under increased pressure in the U.K. and the European Union to separate their consulting and auditing practices after a series of accounting scandals involving their clients, amid calls for more competition among firms from the U.K. Competition and Markets Authority and the European Commission. The combined firm would become one of the top auditors in the U.K. based on the number of U.K.-listed companies audited by BDO and Moore Stephens. The combined firm would also boast tax and audit practices far larger than its nearest mid-tier competitors, with broad and deep expertise in specific sectors.
The deal is expected to be completed in the spring 2019, BDO and Moore Stephens said Monday. The combined firm would have gross annual revenue of 590 million pounds ($753 million) with 5,000 employees across the U.K. The firm would adopt the BDO brand and remain part of BDO globally. BDO’s global revenues exceed $8 billion and the firm already operates in 162 countries. Partners of both firms have voted to approve the merger, subject to final contracts.
The proposed deal relates only to Moore Stephens LLP, encompassing the London, Birmingham, Reading, Bristol and Watford offices of the current Moore Stephens UK network. In London, BDO’s headquarters are on Baker Street (near Sherlock Holmes’), and the firm intends to open a second office to accommodate the growth and retain its city-based presence for clients after the merger.
The deal comes at a time of lingering uncertainty in the U.K. over the Brexit plans that Prime Minister Theresa May recently finalized. The plan was approved by leaders of other E.U. countries on Monday, but it still has not been approved by the U.K. Parliament and has come under sharp criticism, sparking the departure of several members of May’s cabinet.
“If ever there were a time for firms to turbo-charge their growth, it’s now,” said BDO managing partner Paul Eagland in a statement. “As a combined firm, we offer greater choice, competition and scalability to the top-end of the market, and are better placed to deal with any economic disturbance from Brexit. It was clear from our first meeting that we share similar culture and values. As professional services firms, our people are our greatest asset and it is essential that we create an enlarged business that retains the best of our similar cultures.”
He added that BDO is in a great position in the market, in both the U.K. and across the world as part of BDO’s $8 billion global organization. Eagland also pointed to some of the recent accounting scandals in the U.K. “In the last 12 months — in the wake of Carillion and the subsequent focus on competition in the audit market — the U.K. market now has a better appreciation of BDO’s capability and quality,” he said. “This deal increases our credibility further and proves our commitment to competing in the top-end of the market. But we’ve always said that size isn’t a proxy for quality. A driver of this merger is one of sustainable and profitable growth that benefits our clients, people and capital markets alike.”
The two firms operate in some of the same sectors: energy, technology, retail, real estate, financial services and more. Moore Stephens is also very strong in the shipping, insurance and donor assurance sectors.
“To be entering final discussions to create the largest U.K. accountancy firm focused on entrepreneurially spirited and fast-growing businesses is exciting – and critical for market competition,” said Moore Stephens LLP managing partner Simon Gallagher in a statement. “The proposed merger provides a platform for continued, sustainable growth, as well as offering something different to the market at this important time. Clients are asking us to deliver an ever-increasing range and depth of solutions, provided globally. Combining with BDO makes providing that much easier.”
Gallagher added that Moore Stephens is a very profitable business, seeing double-digit growth for several years in a row. “This merger will allow us to remain on that kind of trajectory,” he said. “It’s the people who will make this merger a success, which will translate into greater career opportunities and development, allowing them to deliver more valuable services to clients. BDO is also a very well-respected, financially stable and focused firm, with an entrepreneurial heritage. Combined, we offer something truly unique and special.”
