Accounting mergers could move west

Global forces in the accounting sector are prompting the rationalisation of mid-tier firms around the nation, increasing expectations that Western Australia will not remain immune from this trend.

Local firms confirmed that there have been approaches from the so-called big four firms, and at least one mid-tier player said it was actively looking for merger partners.

The activity follows RSM Bird Cameron snapping up the Sydney office of Bentley MRI last week, while last month Deloitte further consolidated its base as a big four firm with raids on Horwath in Sydney and BDO in Melbourne.

The moves are being driven by the demands of increasing regulation, booming business growth and increasing client demands for a wider range of services.

RSM Bird Cameron Perth office managing director Mark Conlan told WA Business News the recent rationalisation activity over east may make it more difficult for their Perth-based affiliates to service clients.

Mr Conlan said Perth firms often rely on their east coast affiliates as a source of work or to service the interstate needs of their WA clients.

The merger activity, or even the departure of key personnel in affiliates, could lead to an imbalance which meant Perth firms may need to find new networking arrangements or seek to merge with former rivals, although it was not easy to find possible partners in today's market.

“I think there will be continual activity over the next couple years until things settle down again,” Mr Conlan said.

He said RSM Bird Cameron was not actively seeking merger partners in Perth but confirmed the door was open, probably after the Sydney merger was bedded down.

Mid-tier practices are coming under increasing pressure to provide as big changes in both their industry and business in general make it harder for smaller operators.

Some of these demands include increasing regulation, human resource issues such as skills shortages, changing demands of workforce led by younger demographics, industrial relations, modern IT requirements and training expectations of staff.

However, Grant Thornton managing partner Geoff Kidd believes rationalisation in the Perth market is a possibility since circumstances, including the current regulatory requirements, may force mid-tier accounting practices to look towards merger activity.

“ASIC’s requirement to rotate auditors may place pressure on mid-tier practices to look towards merging with other mid-tier or larger practices,” he said.

Commentators on ASIC’s rotation requirements, which came into effect for financial years beginning July 1 2006, have previously said the rules could reduce competition in the market by driving clients to the big four accounting firms, and could also force small firms to merge to keep their clients.

While flagging the possibility of rationalisation in the accounting industry in WA, Mr Kidd was quick to point out Grant Thornton was not in any hurry to join up with competitors.

“We have a pretty unique position in providing services to private and family owned businesses, and we are not currently interested [in merger activity],” he said.

“It’s not on the horizon.”

Meanwhile, Pitcher Partners managing partner Bryan Hughes said there would be little action in regards to a rationalisation of the industry in the WA market, despite constant discussions between the larger and mid-tier accounting firms.

“There is a big gap between the mid-tier firms and the big four accounting firms and there has been much talk about who will move up into this space,” Mr Hughes told WA Business News.

“All the mid-tier firms are currently jostling for position, but I don’t think there will be any changes soon…most [mid-tier practices] are doing well and are playing their own game.”

The most recent merger activity amongst Perth accounting practices took place in July last year, when Bentley MRI Perth’s audit division merged with fellow mid-tier accounting practice Hall Chadwick.

The merger followed a succession of departures from Hall Chadwick, including the company’s insolvency partners Kim Strickland and Chris Williamson leaving with their staff to set up a new practice trading as SimsPartners.

This year, ASIC inspected Grant Thornton’s Perth office, as well as the big four and five smaller firms’ offices, to examine independence and audit quality, with follow up inspections in 2007.