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 The Next Four: BDO, RSM, Grant Thornton and Baker Tilly

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PostSubject: The Next Four: BDO, RSM, Grant Thornton and Baker Tilly   Wed Apr 12, 2017 3:55 pm

The Next Four: BDO, RSM, Grant Thornton and Baker Tilly. And A Surprise

We recently published our extensive financial analysis on the Big Four Firms (read here, download here), and with some recent revenue announcements by the next set of firms, here is a brief overview of The Next Four, the second set of international but smaller accounting firms.
As you can see below, these are large complex organizations in their own right, and likely to place in the global Fortune 500 as independent entities. They are multi-billion dollar, multi-firm, transnational enterprises, with presence in 100+ countries, and providing a wide variety of accounting, tax and advisory services. In another industry, they would be good contenders for top positions, but the sheer size of each of the Big Four firms totally dwarfs their presence in the accounting & tax firm sector. Consider that the combined revenue of these four firms (~$16 billion) is less than the revenue of the smallest of the Big Four firms (KPMG at $20 billion).
To recap:
First, PricewaterhouseCoopers, still the largest firm in the industry
Second, Deloitte, just a bit behind PwC
Third, Ernst & Young
Fourth, KPMG, the smallest of the Big Four firms
Fifth, and a distant follower to KPMG is BDO International, which had total combined fee income for all BDO Member Firms of US$ 5.026 billion for the year ended 30 September 2009, a creditable year over year increase of 1.7 % in euro terms but a decrease of 2.3 % in US dollars terms. In local currency terms, excluding the effect of all currency movements, revenues actually increased 4.5%, with the appreciating US dollar reducing this by about 7% when results were reported in US dollars from 2008 to 2009.

Europe and North America both decreased combined fee income, but Asia Pacific, Middle East and Sub Saharan Africa regions each had an increase of some 20% in Euro terms. Latin America grew by almost 10% in Euro terms.
Audit & Accounting grew by 4.5%, Tax fell by 3.9% and Advisory services fell by 10%. The total number of people increased from 44,002 in 2008 to 46,035 in 2009, while the network’s offices grew from 1,095 to 1,138 over the same period.
In recent news BDO Seidman, the US member firm, simply became BDO.
Sixth, and jumping over Grant Thornton to take that sixth spot is RSM International with 2009 worldwide revenues of US$3.87 billion, up a solid 8% from 2008. Of this global revenue, Americas have US$2.65 billion, Europe has US$837 million, Asia Pacific has US$349 million; and Africa & Middle East with a small figure of US$36.8 million. RSM International has 32,492 people, comprised of 3,150 partners, 23,262 professional and 6,080 administrative staff in 736 offices in 76 countries.
There were some bright spots for RSMI which led to this increase. In 2009, Singapore and China revenues rose 31% and 17% respectively, with good showings from Philippines, New Zealand, Indonesia and Malaysia. Revenues in Belgium shot up 69% due to a local merger while member firms in Malta and Portugal also grew by over 25 percent each. RSM Tenon, the newly merged UK member firm, increased the UK firm revenues to US$406 million.
RSMI’s 8% increase in revenue was a key factor in displacing Grant Thornton from sixth place, as Grant Thornton’s revenue went the other way, dropping by 9%.
Seventh, and just behind RSM International is Grant Thornton International (losing that sixth spot), with combined global revenues of $3.6 billion from its 96 member firms for the year ended 30 September 2009. Revenues for 2009 were flat in local currency terms from 2008, but declined 9% in US dollar terms from 2008.
Assurance revenues at $1.6 billion (46% of total revenues) increased 5% in local currency terms but dropped 4% in US dollar terms against 2008. Tax revenues of $763 million (~25% of total) were flat to 2008 in local currency terms but were down 9% in US dollar terms. Specialist advisory services revenues were $884 million (25% of global dollar revenues), down 5% in local currency but down 16% in US dollar terms
Latin America and the Caribbean had solid local currency growth of 13%. Europe, Middle East & Africa revenues were flat at local currency terms. Greece (up 11%), Poland (12%) and Belgium (19%) were top performers. 2009 North American revenues were down 1% from 2008. Asia Pacific revenues were up by 14% at constant exchange rates, helped by a 23% increase in revenues by the India member firm.
Grant Thornton’s 9% drop in revenue led to its displacement as the sixth largest accounting firm in the world. An unexpected surprise indeed.
In Eighth place is Baker Tilly International with 145 member firms in 110 countries and 2,800+ partners and 25,000 people. Baker Tilly’s revenues for fiscal year 2008 were US$2.95 billion, up 18% from 2007. We could not find Baker Tilly’s 2009 revenues, but presume they were higher than 2008.
According to the recently published rankings of 40 accounting organizations from the International Accounting Bulletin’s annual world survey, average network revenues dropped 6% to $122 billion and average association revenues increased only 3% to $20.8 billion. The Bulletin says that this is a nearly a 20% revenue turnaround for networks with some of the largest firms affected, corroborating our earlier analysis of the Big 4 firms. Only two firms in the top 10 – RSM International and Baker Tilly were able to increase their revenues from 2008 to 2009.
The Bulletin further noted that Audit demand was affected by severe fee reductions, as high as 40% in come cases. Tax demand suffered as clients generally paid less tax, affecting the appetite for tax planning advice. But the most impacted was corporate finance with 2009 being the worst year for M&A deals since 2004. Restructuring services were in good demand. Most firms noted heavy investment in Asia-Pacific, with Asia Pacific, the Middle East and Latin America reporting solid growth.
The IAB predicts, as we did in our analysis, “If the networks’ recent growth trends continue, Deloitte will overtake PwC this year.”
Note that the revenues for the Big Four firms fell 7% from $101 billion in 2008 to $94 billion in 2009. In 2009, it is interesting to note that the total global revenues of all the other 36+ large accounting firms combined were only $26 billion ($122 billion minus $94 billion). And the 6% drop in the industry is largely defined by the 7% drop in the mega Big Four firms (PricewaterhouseCoopers, Deloitte, Ernst & Young and KPMG).
The IAB’s analyis is in sync with our findings, and the big surprise is clearly RSMI’s move to the sixth spot, swapping places with Grant Thornton. We shall look out to next year where there are two close races: Deloitte versus PricewaterhouseCoopers to be the largest accounting firm on the planet and RSMI versus Grant Thornton for sixth and seventh spots.
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The Next Four: BDO, RSM, Grant Thornton and Baker Tilly
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