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Friday, 18th September 2020
Accountancy still sees growth, but pace slackens to an 11 p.c. gain back
The golden era of uninterrupted double digit fee income growth by Ireland's largest accountancy firms is showing signs of flagging, according to the results of the FINANCE Accountancy Survey 2008, which shows fee income of the twenty largest practices up by 11.0 per cent in the past year, a reduced rate of increase compared with the 19.6 per cent recorded in 2006/7.
Total fee income of the twenty largest practices in the country was EUR1,263.5 billion, compared with EUR1,137.8 billion for the same twenty firms a year earlier.

For the past five years, annual growth has ranged between 15 and 20 per cent, but, there has now been an interruption to the trend, particularly in the latter six months of the reporting period. And, judging by the comments of the country's twenty largest managing partners in the survey the pattern for the coming months points further downwards.

The figures relate to the income figures of practices in year ends up to the middle of 2008. Not all firms share the same end years for their annual figures, and results cover year ends stretching through the first half of this year.

Company2008 Survey2007 Survey% ChangeMarket Share
PricewaterhouseCoopers355.0322.010.228.0
KPMG307.7269.314.324.3
Deloitte165.1143.615.013.0
Ernst & Young148.0138.07.211.7
BDO Simpson Xavier69.072.0-4.25.5
Grant Thornton45.040.012.53.6
Mazars30.026.015.42.4
FGS29.021.833.32.3
Horwath Bastow Charleton19.216.020.01.5
Russell Brennan Keane17.416.55.51.4
Baker Tilly Ryan Glennon, Business Partners and Accountants13.012.08.31.0
IFAC Accountants11.710.79.30.9
HLB Nathans11.410.014.00.9
Oliver Freaney & Co9.19.01.10.7
PKF O'Connor, Leddy & Holmes8.08.00.00.6
Brenson Lawlor6.26.11.60.5
OSK5.95.73.50.5
Ormsby and Rhodes5.55.41.80.4
McInerney Saunders3.83.411.80.3
KSI Faulkner Orr3.52.445.80.3
1263.5


The credit crisis and the associated economic downturn is blamed fairly and squarely for the decline, and the evident change in the shape of business, with corporate recovery, and insolvency coming to the fore for the first time in many years (see Managing Partners' Forum).

There will be some slowdown in recruitment as well, with the intake of professional and qualified graduate staff expected to suffer. However, the main firms on the other hand have no plans to cut their trainee intake, (See 'Planned Recruitment' table at www.finance-magazine.com) given that firms are taking a long term view on the growth of the industry.

Thus, while accountancy employment growth can be expected to falter in the coming year, for trainees the intake remains undiminished. This still represents a strong performance, as 2007 was the biggest year on record for the admission of qualified acccountants. The ICAI, for example qualified 1,000 chartered accountants in 2007, up from 888 in 2006, and almost twice the annual levels of the late 1990s.

The major firms have all, in their distinct ways, managed to share in the remaining buoyancy of the economy, before it closes itself down to aggressive growth to sort itself out in the context of the credit crisis. Ernst & Young, in particular faces the challenge of having globally introduced a new sectoral based organisational structure, which while providing logical strategic benefits, creates the challenge for partners in the firm to retain local loyalties in the context of challenging market conditions.

Accountancy in Ireland remains quite concentrated compared with similar developed economies, with the market share of the Big Four amongst the two twenty practices in the country rising in the latest year to 77.2 per cent from 75.2 per cent a year earlier.

Nevertheless, the mid market is very vibrant, with the next ten firms all showing solid growth. FGS was the fastest grower, with a 33.6 per cent gain in fee income during the year, to reach EUR29 million, boosted as it was by acquisitions, such as Moore Stephens Caplin Meehan, and Lyons Keenan Kilemade. Next fastest growing was Horwath Bastow Charleton (20 p.c.) followed by Mazars, with 15.4 per cent.

The country's fifth largest practice, BDO Simpson Xavier, historically one of the fastest growers suffered an unusual reverse, with fee income dipping in the year it elected a new managing partner, Peter O'Carroll. Peter O'Carroll explains the slippage by pointing to a change in strategy in the Munster region, with the departure of the southern practice to be replaced by a strategy this year for the firm to pursue an own label approach there.

The country's no 6, Grant Thornton, had a good year, with fee income rising by 12.5 per cent, and this will be boosted by the very strategic acquisition of insolvency experts Foster McAteer, which will, at a stroke propel the firm towards the EUR50 million fee income figure for next year's survey.

The combined firm will create one of the largest corporate recovery and insolvency units in Ireland. Foster McAteer is projecting fees this year of over EUR4 million and has five partners and 24 staff, all of whom will join
Grant Thornton.

'This merger provides great synergy for the firm and underscores our ambition to significantly grow the business by developing market leading positions in chosen areas like corporate recovery,' says Grant Thornton Managing Partner Paul Raleigh.
'The merger also enables us to further expand our privately held business and corporate finance activities.'

According to Brendan Foster, founding partner of Foster McAteer and current president of ACCA Ireland said: 'Our enlarged insolvency and recovery team are ideally positioned to advise companies and individuals during these challenging times.'
Both of these firms, along with Mazars, and FGS have ambitions to try to encroach into the Big Four space, but, realistically, they face the barrier of global big four that makes a big four audit partner a calling card for global companies and multinationals, who are the foundation rocks of the Irish economy, and 'jewel in the crown' sectors such as TMT, bio, pharma, and international financial services.

Growth by acquisition is the fast track towards expansion in the sector, and, according to the comments from managing partners in this year's survey, there is a widespread acceptance that a 'corporate' model, rather than partnership business model will continue to drive the sector, despite definite views in a number of firms, for example, Deloitte, amongst others, of the continued benefits of the partnership model.

The 20 managing partners in the survey were asked 'Do you feel that the partnership model partnership model is outdated?', and of those replying to this question, eight said yes (38 p.c.), and 9 said no (43 p.c), with 4 either expressing no opinion or no response. In reply to the question 'Do you feel that your company has to move towards a more corporate model in managing business?, two thirds said yes, on the other hand.

An example of the trend during the year is the merger announced this summer between No 14 in this year's survey, Oliver Freaney & Co, and no. 8 UK firm Smith Williamson, which will result in a new entity from Autumn 2008, Smith Williamson Freaney. The partnership will retain the existing partnership structure for audit work but will incorporate for tax and business advisory services. Its managing partner Paul Wyse will continue in the role of managing director.

Acquisitions and mergers remain on the agenda, with the changed business environment emphasising corporate recovery and business advisory services. Incoming BDO Simpson Xavier managing partner Peter O'Carroll for example, is targeting acquisitions as well, pointing out that the firm in particular is in the market for partnerships where the business is in growth sectors and the partners have a young age profile.

Perhaps the best chance of any challenge to the dominance of the Big Four lies in a merger between the table's no. five and six, BDO Simpson Xavier, and Grant Thornton.

This has been mooted, but in the past year had foundered on the rock of incompatibility between the French speaking and English speaking wings of the firm in Canada, one of its principal stomping grounds. On the assumption that this local spat can be sorted out, the prospect of a merger between the two would, in Irish terms, leave such an entity with a combined fee income of approximately EUR120 million, still 20 p.c short of Ernst & Young's EUR148 million, but within striking distance.
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