How the Baker Street brigade are taking on the Big Four accountants

YOU get the impression when you meet him that Simon Michaels, the managing partner of BDO Stoy Hayward, wants a lot of things &ndash; and one of the first is a larger slice of the UK accounting pie.<br /><br />Michaels, at 42 the youngest person to lead the UK&rsquo;s sixth-largest professional services business, was elected to a four-year term by his fellow partners taking over from Jeremy Newman in July. A month later, BDO posted 2008 figures that showed its profits fell 10 per cent to &pound;65m, giving its 235 partners an average profit share of around &pound;270,000. This is &pound;40,000 down on a year ago.<br /><br />Michaels puts this decline down to the costs of a reorganisation of its business from relocating its five London offices into one headquarters in Baker Street and to marketing spend.<br /><br /><strong>SINGLE-DIGITS THIS YEAR</strong><br />He says his firm is currently on course to enjoy a single-digit profit growth this year when it reports this autumn. But he is determined, despite the current economic slowdown, that BDO, which employs 3,000 people should attract new business and not spend another year navel gazing.<br /><br />In the flat forceful tone you would expect of someone who has risen so quickly, he says: &ldquo;Opportunities are out there. There is an appetite in the investment community to open up the professional services market to more players. Our challenge is to build our market share.&rdquo;<br /><br />Michaels, who ran this year&rsquo;s London Marathon in 4 hours and 48 minutes, is sitting in a first floor meeting room in the firm headquarters that used to house Marks &amp; Spencer. The look of the office is that of a first class airport lounge, and the building is full of cream carpets, subdued lighting, leather and chrome sofas, and pine wall panelling.<br /><br /><strong>THREE PER CENT MARKET SHARE</strong><br />Watford-born Michaels is a BDO lifer who joined the firm at 20 in 1987. He always specialised in restructuring and rose quickly, becoming a partner in 1999 and head of the firm&rsquo;s UK&rsquo;s restructuring division in 2004 before taking over the leadership of the firm last summer.<br /><br />&ldquo;If you make a restructuring guy head of your firm it means you want to change things,&rdquo; says a senior rival accountant. He adds: &ldquo;These guys spend their professional lives working with other firms trying to change working practices in an attempt to add value. If you elect them as head of your accountancy business it means you want them to do the same for you.&rdquo;<br /><br />The business currently has a 3 per cent share of the market &ndash; behind the Big Four firms PricewaterhouseCoopers, Deloitte, KPMG and Ernst &amp; Young and the fifth biggest player Grant Thornton. Michaels won&rsquo;t give details but says he&rsquo;s &ldquo;looking to significantly grow&rdquo; BDO&rsquo;s share of the professional services market.<br /><br />Michaels says the business currently acts for 25 per cent of the FTSE 350, and he professes to be &ldquo;happy&rdquo; with the new business progress of the firm so far.<br /><br />But it is clear that Michaels, like all accountancy bosses outside the Big Four, wants greater access to FTSE 100 firms who are in a position to pay big fees for audits and special projects. The fees such companies hand their accountants and advisers can be substantial. Take the case of the three UK banks that have taken state aid during the financial crisis: Royal Bank of Scotland (RBS), Lloyds TSB, and HBOS (the latter two now merged) have paid their accountants Deloitte, PwC and KPMG more than &euro;390m (&pound;333m) since 2000.<br /><br /><strong>STRENGTH OF THE BIG FOUR</strong><br />Smaller professional services firms say they do not get a chance to bid for these lucrative contracts because large investors only want to put their cash in businesses that have been audited by the Big Four firms. Perceptions about the depth of global service also matters.<br /><br />But Michaels points out his firm has still managed to pick up work from some of the biggest firms in the country, citing the restructuring of financial services group Dawnay Day and the valuation of nationalised bank Northern Rock in the last year.<br /><br />He says: &ldquo;Some business can be got because it is conflict driven when the Big Four firms act for an industry rival and cannot bid for a contract, some business is driven by costs. Clients are looking around for a good deal in this difficult time in the marketplace.&rdquo;<br /><br />Michaels says that during the downturn FTSE 100 firms still have access to credit, unlike smaller outfits. He says: &ldquo;The credit markets are still very tight. There is a more cautious approach to lending. These decisions take longer and are much more difficult to obtain. But FTSE 100 companies are able to get good access to bank funding.&rdquo;<br /><br />By contrast, he says, the majority of middle market firms BDO deals with struggle to get bank credit. He insists the problem needs to be addressed &ndash; not just to help his clients but to kick-start the wider economy.<br /><br />He says: &ldquo;We need the debt market to open up again. The availability of debt will again allow deals to be made by private equity firms.&rdquo;<br /><br /><strong>FTSE 100 CLIENTS</strong><br />Michaels is clear that the firm should use these recent big wins to go after other big clients. He says: &ldquo;Any blockages to new business can come through perceptions over what we can do, and what we are actually capable of. It is up to us to get out there and meet clients and break down those perceptions with our professionalism and expertise.&rdquo;<br /><br />Michaels has also made the business leaner. He has reduced his senior management team from seven to five, and also cut around 240 posts, or around 8 per cent of the workforce, from the firm last year.<br /><br />He says half of his time is spent on internal issues like this while the other half is &ldquo;spent with clients to understand where their opportunities and problems are. And supporting bids for new business.&rdquo;<br /><br />Recession or no recession, Michaels seems determined to serve his core mid market clients while also poaching as much FTSE 100 business as he can. Many other professional services firms have attempted this before, with little success &ndash; but if sheer determination is the key in this quest for the professional services Holy Grail, then Michaels could yet engineer a breakthrough.<br /><br /><strong>CV </strong> SIMON MICHAELS<br /><strong>Age:</strong> 42<br /><br /><strong>Work:</strong> 1987 &ndash; Joined BDO and specialised in business restructuring. 1999 &ndash; Made partner. 2004 &ndash; Appointed national head of business restructuring. 2008 &ndash; Elected managing partner<br /><br /><strong>Family:</strong> Married with four children<br /><br /><strong>Lives:</strong> Buckinghamshire<br /><br /><strong>Hobbies:</strong> Running (ran this year&rsquo;s London Marathon in 4 hours and 48 minutes, music, football (a Chelsea fan) and golf