Big Four firms allegedly interested in scooping Grant Thornton

05 August 2019 Consultancy.com.au

Big Four firms EY and KPMG are allegedly vulturing around Grant Thornton’s operations in Australia. 

With over 1,150 employees working across offices in Adelaide, Brisbane, Cairns, Melbourne, Perth and Sydney, Grant Thornton is one of Australia’s larger accounting and consulting firms. The company generates revenues of over $250 million, making it Australia’s seventh biggest accounting firm by revenue, however its top ten status is by no means guaranteeing it a smooth independent status. 

According to an item by Australian Financial Review (AFR) journalists Sarah Thompson and Anthony Macdonald, EY and KPMG have been, and perhaps still are, eyeing making a bid for the mid-sized professional services firm. Insiders close to the matter told Thompson and Macdonald that KPMG conducted an exploratory high-level due diligence on Grant Thornton last year, but following secret talks never made a formal offer. Whether or not Grant Thornton still is on KPMG’s longlist is at the time of writing not known. 

Recently, EY even took the matter a step further, and informally approached Grant Thornton’s leaders to explore a potential joining of forces. 

Grant Thornton is on the radar of Big Four firms

The interest comes at a time when both KPMG and EY are booming in Australia. KPMG is the smallest of the Big Four domestically, with revenues of around $1.7 billion, but the second fastest grower (after Deloitte), while EY is with $1.8 billion turnover the number three in the market. Both continue to consider inorganic growth as an effective avenue to close the gap with market leader PwC (revenue of $2.4 billion) and potentially overtake Deloitte (turnover of $2 billion*). 

Inorganic growth is by no means new to KPMG and EY in Australia. EY has closed three local deals in the past year – Plaut IT, Adelphi Digital and Articulate Consulting, the same number of deals completed by rival KPMG – Love Agency, Ferrier Hodgson and UDKU.

Not surprisingly, EY has declined to comment on the story. “We have not met with any firm and we are not in any merger discussions,” said a spokeswoman. Similarly, a spokesperson of Grant Thornton said that the firm does not comment on dealmaking rumours, further pointing at a statement the firm released last year at the time when the KPMG story surfaced. “We have the largest audit practice outside of the big four… are extremely attractive in the marketplace, and are committed to remaining independent to the Big Four.”

Such statements should however be taken with a pinch of salt – they are standard procedure in the heat of pre-deal talks. Yet, in most cases, they are spot on, as most deals don't materialise. At the turn of the century, Grant Thornton held merger talks with PwC in the US, they broke down, and since Grant Thornton has abandoned merger talks with top ten peers in several major economies. Nevertheless, they can just as well be signs of things to come. Deals between top ten accounting firms do take place, in particular among member firms in smaller markets (EY for example in February acquired KPMG's member firm in the Dutch Caribbean) or across certain offices in mature markets. 

Deals of such scale remain rare

For deals comparable with Grant Thornton’s size in Australia, the odds remain low though as transactions of such scale remain a rare feat. One of the most notable examples of a deal that did manage to close was that between EY and KPMG in Denmark. Six years ago, KPMG, with 1,500 employees the number three in the Northern European country, was picked up EY, the number five player per-takeover.

The news has according to the AFR incited Grant Thornton’s Australian partners to put the topic on the agenda. The firm’s Board met in Melbourne last week to discuss the firm’s independence vow and how to handle future takeover approaches. The discussion was led by chief executive officer Greg Keith, who has been at the helm of the accounting and advisory firm for the past three years.

* Deloitte has meanwhile released its FY19 financial figures – $2.3 billion on the back of 13% growth. The other trio of the Big Four have not yet released their figures, and for purposes of comparison, Deloitte’s FY18 revenue is used.


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