A hot tip into Crikey this morning tells us that two of Australia’s
heavyweight accounting firms, Deloitte and BDO, are set to merge in a move that will be publicly announced later this week.

Deloitte, internationally ranked the number one non-investment banking
firm for global corporate reorganisation services for second quarter in
a row, is the smallest of
Australia’s Big Four accountants, producing $450 million in revenue for the 04-05 year.

BDO, the seventh
largest accounting firm in Australia and one of our largest second tier
firms – employing more than 900 people in Adelaide,
Brisbane, Darwin,
Melbourne, Perth
and Sydney – produced fee revenues in
excess of $100 million in 04-05.

According to our tip, Deloitte would remain Australia’s fourth largest
accounting firm after the merger, behind KPMG.

It’s big news, if it’s true – we’ve put calls in to both firms, but are yet to hear back. And while it might
come as a surprise to accountants, the merger makes sense. For years Deloitte
has tried to scramble into the revered top three but trails well behind Ernst
& Young, PriceWaterhouseCoopers and KPMG – who between them dominate the shrinking
number of blue chips clients. Consequently, Deloitte
has tried to pitch itself to the top end of the small and medium business market
– a market BDO has also pursued.

better for Deloitte and BDO to join forces and target emerging companies

The merger will create a more aggressive beast, drawing
business away from mid tier accounting firms. Smaller firms claim Deloitte is already
pulling out all stops to snare fast growing small to medium (SME) clients, offering free services
and consultations.

But there is also a downside. Says
one accountant who deals with fast growth firms: “Clients say to us don’t get
big, don’t merge because the service will get worse and we will lose access to a
partner. And that is the danger Deloitte and BDO will face: getting too big will
make it harder to service the SME market.”

Peter Fray

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Peter Fray
Editor-in-chief of Crikey