Grant Thornton is spearheading a movement among US mid-tier accounting firms to revolutionise the way they operate internationally – changes that could significantly disrupt the sector beneath the dominant ‘Big Four’. These firms, operating below KPMG, Deloitte, PwC, and EY, are striving to cater to the evolving needs of an increasingly international client base, and simultaneously optimise their global networks to distribute staffing and tech expenses effectively.
As disclosed by the Financial Times earlier this month, Grant Thornton’s US enterprise has hinted at the prospect of taking over its UK and Irish branches. This follows its sale of a majority stake to a private equity company earlier in the year, providing it the extra power to widen its reach.
Mid-tier US accounting firms, still considerable in size, such as Crowe, RSM and Baker Tilly are trying to figure out the best approach to integrate their international operations more smoothly and extend the cost of nascent services beyond core auditing and taxation. With escalating costs linked to building corporate advisory and digital transition services, the industry is no longer a capital-light profession, as Francesca Lagerberg, CEO of Baker Tilly International emphasises.
These international accountancy networks comprise national firms that are legally independent entities owned by domestic partners, although they operate under a shared brand, collaborate, and impose essential quality standards.
Given its decision in May to sell a 60% stake to New Mountain Capital for $1.4 billion, long-standing industry experts are not taken aback by the fact that Grant Thornton US has suggested the most audacious strategy to date to revamp its international operations.
Grant Thornton has the chance to revolutionise the scene with private equity funds, according to Chicago-based accounting firm consultant, Allan Koltin. He argues that clients prefer a more seamless experience and find dealing with multiple service providers cumbersome and ineffective. Koltin further suggested that over the next ten years, he anticipates more than half of the top ten to become global firms.
In line with this, the suggestion is for UK and Irish partners to become minor shareholders in an international holding company, presided over by Grant Thornton US. Professional advisory services are currently being employed by the UK and Irish firms to explore this proposition, and additional options, including striking individual deals with private equity.
The accounting landscape in the US has evolved from being predominantly fragmented to undergoing swift consolidation recently. The bigger players are increasingly aiming to establish their brands on a global scale.
Steve Strammello, the soon-to-be CEO of Crowe (the 12th largest accounting firm in the US by revenue and the largest in the Crowe Global network) believes that the consolidation vision held by Grant Thornton US could be imitated in other locations.
The concept of collaborations between the firm and other member firms, encompassing resource sharing, intellectual property, and technology, and potentially, capital, is being discussed. Crowe has so far not promoted mergers amongst its 200-plus member firms globally, although it has recommended deals when issues relating to leadership succession planning or similar issues arise, as stated by Kamel Abouchacra, the CEO of Crowe Global.
There are however hurdles to be overcome when it comes to merging firms, such as how profit distribution among partners varies from firm to firm. At some point, a dialogue about how the profits are divided will have to be conducted.
This re-evaluation of global operations by mid-tier firms comes on the back of prior attempts by the Big Four to restructure their networks, which yielded mixed results. Ernst & Young’s (EY) effort to combine the consulting arms of its 30 largest national firms into a new firm set for a stock market listing fell apart due to disagreements over the equitable division of the businesses.
Deloitte has successfully merged numerous national companies into large-scale regions. A previous pan-European alliance fell through in 2007, but in May, KPMG’s UK and Swiss firms decided to go through with a merger.
Mazars, operating as one entity outside the US, established a ‘two-entity network’ with Forvis in June, one of America’s top 10 firms. Both argue that this arrangement should make business operations simpler compared to networks with a large number of member firms.
Tom Watson, the CEO of Forvis Mazars US, asserted that having just two groups of executives simplifies decision-making on investment strategies and determining locations for new services.
Additionally, the environment for medium-sized firms is becoming increasingly competitive due to emerging companies attempting to capitalise on multinational corporations’ needs. CLA, based in Minnesota, has created a top-20 network in less than two years by collaborating with over a dozen firms globally.
CEO of CLA, Jen Leary, stated, “Our clients understand the complex nature of international business. Our primary objective is to establish a trusted global network.”
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