BDO is preparing to merge with smaller accountancy rival Moore Stephens, in a move that will create a new fifth-largest auditor in the UK, bumping Grant Thornton off the spot.
Partners at BDO, which currently holds the number six position, has approved a merger with Moore Stephens, currently the ninth-largest professional services firm in Britain, according to a person with knowledge of the proceedings.
If approved, the deal – details of which were first reported by the Financial Times – would create a firm with a combined revenue of around £560m: knocking Grant Thornton from the fifth place spot, but still far smaller than fourth-place KPMG, which has revenues of around £2bn in the UK.
The two firms previously merged their South African divisions in 2010. The merged firm continues to operate under the name BDO.
The merger, which is expected to be formally announced as early as this week, comes at a crucial time for the audit sector, which is undergoing a series of simultaneous reviews aimed at raising standards and reducing the dominance of the Big Four audit firms – Deloitte, EY, KPMG and PricewaterhouseCoopers – that together audit 98 per cent of the FTSE 350.
Both companies recently responded to the Competition and Markets Authority (CMA) review of the sector. BDO – which has one FTSE 100 client, Randgold Resources – called for the gradual introduction of a client cap to disrupt the dominance of the Big Four, in which the number of big contracts any audit firm can have would be limited.
It said “This intervention could be as simple as by 2023 no audit firm can act for more than 60 FTSE 350 audit clients.”
Moore Stephens backed “a blended approach of the market share cap and joint or shared audits”.
BDO declined to comment, and Moore Stephens did not immediately respond to a request for comment.
Under the leadership of Paul Eagland, its managing partner, BDO has expanded its dominance of audit contracts in the UK’s alternative investment market, and the firm announced a nearly 20 per cent rise in profits this year. Last month, Eagland told City A.M. he hoped the various reviews the audit sector is facing would produce a “single, coherent, synchronised vision for the future”.