Simon Michaels, managing partner of the UK’s sixth largest professional services firm, thinks it is all to play for
BY THE end of July, the builders had almost finished with BDO’s London headquarters. The glass-fronted Baker Street building, once the home of Marks & Spencer’s main office, has been revamped to make space for the hundreds of accountants moving in from PKF, which merged with BDO in March.
Managing partner Simon Michaels was sanguine about disruption from the building work – the entire office is already open plan, and the hot-desking policy also includes him. “The concept of saying my door is always open is a bit of a misnomer because I don’t have a door – but I always try to engage with people.
“We’re quite a friendly bunch, actually, and we do encourage people to create the right environment.”
Michaels has been setting the tone at the top of BDO, the UK’s sixth-largest accountancy firm, since 2008, having spent his entire career with the company. He has travelled the country to meet every employee of PKF in the 100 days since the merger completed.
“We’ve heard of businesses that have merged and didn’t get their people together, but we wanted it to feel that it was a merger as well as hearing lots of noise and talking about it.
“We’re now in some more geographical locations, and we’ve got some more services that we can offer and expertise in certain industries. Clients are really interested to find out what we can do from a bigger platform.”
While he thinks BDO has “got its hands full at the moment” with the PKF integration, he expects deals to be done between other mid-level accountants soon.
“One of the views I’ve had for some time is that there’s over-capacity and there needs to be some consolidation.”
The enlarged BDO has begun to pitch for work as a single company, and has recently been approved to bid for government contracts under the new ConsultancyONE framework.
BDO had to resign from its work with the Financial Reporting Council due to a conflict of interest post-merger, but Michaels said the “vast majority” of clients were happy to continue with the firm.
The company now has 3,500 employees and, as part of the BDO International network, helped generate $6bn in revenues last year.
But, says Michaels, the company is not expecting to immediately compete on the same playing field as the Big Four. “Our core client base is the mid-market and the ambition of the merged firm is very much to lead in our core market.
“But what the larger platform means is that we can pitch for some larger contracts too. In an advisory capacity we work for 30 per cent of the FTSE 350; in an audit capacity we act for two per cent. So you can see there’s quite a big difference at the top end.”
BDO is currently the only non-Big Four company to hold a blue-chip audit contract – that of Randgold Resources.
Michaels estimates that his company has the firepower to audit around 60 of the FTSE 100, though the large financial services firms are likely to remain beyond its grasp for now.
He is hopeful that the Competition Commission’s forthcoming reforms to the market will began to “shake loose” some of the blue-chip audit mandates from the Big Four, though he concedes that BDO sees winning such accounts as a “five years-plus strategy”.
“I think we’ve always felt that there was never one single bullet that was going to change the market structure and deal with some of the challenge.
“What we’ve got to do is continue to invest so that those deeply ingrained perceptions change over time, and businesses at the top end of the market feel more confident in buying a BDO.
“It’s going to take some years before you see a real shift, as opposed to us just making up the numbers on a FTSE 350 pitch.”
He thinks there is “some mileage” in mid-market auditors teaming up with the Big Four to offer joint services, but adds that “when you speak to investors in the UK it doesn’t sound like they have a huge appetite to move that way”.
Michaels is supportive of the EU’s attempts to make the market more competitive, and also sees investors as playing a big role in pushing for change alongside Europe’s plan to force firms to change auditor every two decades. “So all to play for, I think, but a little bit uncertain about where it will all end up.”
CV: SIMON MICHAELS
Work: Joined BDO in 1987 as a trainee following his A-Levels. Headed up the firm’s Business Restructuring division from 2004 until his election as managing partner in April 2008. Re-elected in 2012 to serve a second four-year term.
Home: Hertfordshire, but spends two months a year abroad as a board member for BDO International.
Hobbies: Running marathons, most recently in Australia while attending BDO’s Asia Pacific conference. Also a keen skier.