Accounting Firms Ally To Take On The Big 4
Monday, October 16, 2006
For more than a decade, many smaller Washington-based accounting and consulting firms have aligned themselves with one of four larger networks that represent mid-size regional firms. Now one of those networks has gone a step further: banding its member firms together to act as one company.
The network, called Baker Tilly USA, opens for business today, combining 22 mid-size accounting firms from around the country, including Beers & Cutler PLLC locally. The alliance plans to offer tax, audit and consulting services to capture more of the accounting market, a strategy other accounting networks plan to adopt over the next year.
"We're coming at a time when the business market is crying out for alternatives to the Big Four, and we believe our structure can fill that void," said Geoff Barnes, chief executive and president of Baker Tilly International, a worldwide consortium of 125 firms.
The dissolution of accounting giant Arthur Andersen in the Enron scandal, and the more stringent internal accounting controls required by the Sarbanes-Oxley law, created more demand for the Big Four -- Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP -- particularly from the nation's largest public companies.
Second- and third-tier accounting firms often found it difficult to move up the accounting ranks because larger clients typically require industry-specific skills and global reach, which many regional firms do not have.
"Companies have been gun-shy about leaving the womb of the big firms," said Allan D. Koltin of PDI Global Inc., a marketing consultant for accounting firms. "The idea of the one-firm concept is to bring a unique and distinct brand that CEOs and CFOs can feel more comfortable about because they have the resources of their affiliate firms behind them."
Decreased competition in the accounting industry has sparked concern by industry experts and government agencies. In a 2003 study, the General Accounting Office found that smaller accounting firms faced significant barriers to entry into the large public company audit market.
"There is a name-brand effect in the industry," said James Peters, chairman of the accounting department at the University of Maryland at College Park. "It's still going to be very difficult to capture companies out of the Big Four's key market."
Firms in alliances such as Baker Tilly USA "have a better chance of competing with the second-tier firms," which include RSM McGladrey Inc., Grant Thornton LLP and BDO Seidman LLP, he said.
Beers & Cutler, with a staff of 270, specializes in the government contracting, real estate, law firm and automotive sectors. The firm will share that expertise with other Baker Tilly members, said R. Edwin Offterdinger, managing partner.
Sharing institutional knowledge with other firms under a larger umbrella organization could threaten the identity of individual firms. "But it's a dual branding strategy that, if executed properly, will only enhance the brand," Offterdinger said.
Three other networks of accounting firms are preparing to introduce their alternatives. Moores Rowland North America, the Leading Edge Alliance and Moore Stephens North America also include firms based in the Washington area: Aronson & Co., Argy Wiltse & Robinson PC, and Goodman & Co., respectively.
Those groups, with Baker Tilly, represent about two-thirds of the nation's top 100 accounting firms, Koltin said.
Baker Tilly's total workforce of about 8,000 is far smaller than the staffs of the largest firms. Ernst & Young, for example, has 26,000 U.S. employees, and PriceWaterhouseCoopers has about 30,000. They each have around 140 affiliate offices around the world; Baker Tilly has 93.
But networks like Baker Tilly stand to benefit from the large number of smaller, non-global businesses "left behind" by the Big Four in recent years, Koltin said. According to CCH Inc.'s Public Accountant Report, revenue rose 21.9 percent for firms outside the Big Four in 2005, while the top firms' revenue rose 14.7 percent.
The new alliances "will become four very significant pillars that realize that, if they create depth and resources, they can have tremendous competitive advantage against all other firms in the marketplace," Koltin said.