EXCLUSIVE: Top 75 Firms hit £15bn barrier in 5% growth surge

Fee income at the Top 75 accounting firms has reached a record £15.75bn, increasing revenue by more than 5% in the last 12 months despite a barrage of criticism of the Big Four audit firms over contentious listed audits, Brexit concerns and business uncertainty

In this year’s annual Accountancy Daily Top 75 Firms survey, the Big Four – PwC, Deloitte, EY and KPMG - continue to dominate the market accounting for £12.09bn in fee income, up from £11.49bn in last year’s survey, equivalent to a 77% market share.

When the revenue of the top six firms is combined, bringing mid-tiers Grant Thornton and BDO into the equation, fee income totals £13.05bn, representing 82.8% of total Top 75 fee income of £15.75bn.

All Big Four firms reported a hike in revenue, including KPMG which has been the centre of harsh criticism over audit failures such as Carillion, while attempts to refocus the firm following a torrid few years of performance, both in the UK and overseas, has seen significant restructuring. Growth at number four ranked KPMG was up 8% at £2.34bn from £2.17bn year on year.

The top UK accounting firm is PwC, reporting 5% growth year on year to £3.76bn from £3.59bn, followed by Deloitte ranked number two with 6% growth to £3.58bn from £3.38bn. In third place is EY, with lower growth at 3%, reaching £2.41bn, slightly up on the previous year’s earnings of £2.34bn, now well entrench in number three position since 2016.

As per previous years, there is a significant gap between the Big Four and their closest competitors, Grant Thornton and BDO, which have faced mixed fortunes over the last 12 months. BDO has been in acquisitive mood with a rapid merger with part of Moore Stephens group, which was finalised on 4 February.

Grant Thornton, ranked five, reported revenues of £490.8m, down 2% year on year, from £499.9m. This follows a difficult time at the firm as CEO Sacha Romanovich was effectively forced out of office, while the audit function was shaken up with the appointment of a new head of audit and the decision to pull out of FTSE 350 tenders.

With BDO’s merger with Moore Stephens now finalised this will give Grant Thornton a real challenge to retain its number five slot.

BDO reported revenues of £468.7m pre-merger, up 3% from £456m year on year.

The top 10 is also facing new threats with consolidator Cogital Group with its main brands Baldwins and Blick Rothenberg snapping up smaller firms, and based on Companies House estimates, now accounting for around £117m of direct accounting related revenue following the acquisition of Wilkins Kennedy and Campbell Dallas, although these firms have retained their own identity for the time being.

There is significant pressure in the market to push forward with mergers and acquisitions, while concerns about the longer term stability and composition of the Big Four firms is another factor creating uncertainty with a number of high level investigations into the future of audit.

But despite this, the revenues are up substantially on the 2018 survey at £15.75bn, while staff numbers are growing although partner numbers are down below 6,000.

‘The economy is the story, unemployment is at a record low and the great thing about the accountancy sector is that it benefits from this,’ said Ben Chaplin FCA, CEO of tax investigation and insurance specialist Croner Taxwise. ‘Technology is a real driver for the amount of mergers and acquisitions; accountancy firms are really beginning to embrace change. Baldwins, for example, is targeting firms that do not have a strong digital base and with Making Tax Digital, firms need to invest in technology, or they will have problems.

‘But merging with a lot of smaller practices is not without its difficulties, that is why there are likely to be more mergers based on the PKF model, which is more like a network and firms retain their individual branding, that is more sustainable as that keeps the identity of the firms.’

The other big factor in the shadows is Brexit, but the continuing lack of any political certainty about a final deal has left many firms just waiting to see what happens.

Chaplin added: ‘The big concern is that Brexit goes wrong, that would have a huge impact. If the bottom falls out of growth, then you have to ask how many companies have contingency plans in place that do not involve the UK.

‘What the industry is going through is not without its challenges – there will be many more mergers, and then there is the competition between the mid-tier and the Big Four, with the latter looking to compete with smaller firms even with their small business services, for example.’

Report by Sara White

To read the 2019 Accountancy Daily Top 75 Firms Survey, click here

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