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The group’s clustering strategy already saw the merging of several units in the Middle East and Africa. Last year KPMG UK also voted to merge with KPMG’s Swiss business

KPMG is set to merge dozens of its national affiliates in a bid to boost growth and prevent audit scandals, according to the Financial Times (FT).

The restructuring aims to reduce the number of economic units from over 100 to as few as 32 by next year, and is expected to be completed by the end of global chairman Bill Thomas’s term in September 2026.

The FT stated that the move marks a new milestone in the partnership’s ‘clustering’ strategy, which has been a focus for the past two years.

The group’s clustering strategy already saw the merging of several units in the Middle East and Africa. Last year KPMG UK also voted to merge with KPMG’s Swiss business.

KPMG, like other Big Four firms, operates as a network of locally-owned partnerships to comply with local auditing regulations and protect partners from liability. 

However, the FT has learnt that as consulting firms increasingly rely on technology investments, KPMG has raised concerns that smaller units “cannot balance these costs with the compliance demands required for audit quality”. 

As a result, executives have stated that firms failing to meet a US$300m (£232.03m) threshold will no longer qualify as full network members, and any mergers will result in profit pools being shared across the involved countries.

Gary Wingrove, KPMG International’s chief operating officer, told the FT: “The fewer business units you have, the easier it is to do business globally.” 

Writes Accountancy Today

The sale of Grant Thornton UK to private equity firm Cinven could be seen as a watershed moment for the UK accountancy market. It’s not just the size, if reports of a £1.3bn deal are accurate, but the shift from a traditional partnership model to a corporate structure that makes it particularly noteworthy.

Lesley Fordyce and Mark Bell, change directors at Equator, examine the shift from traditional partnership model to a corporate structure, and the impact on business owners

Private equity investors are attracted to accountancy firms which already perform well, and which they think can perform even better. One of the benefits of private equity investment is a chunky injection of cash to accelerate market share through acquisitions, new talent, investment in technology, operational efficiencies, and a range of other changes that can drive sales and increase profits.

But nothing comes for free. In return for new-found financial firepower, private equity asks for growth. And it’s not relaxed, easy, a few per cent per year if all goes to plan growth.

It’s intense, urgent, double-digit-whatever-it-takes-growth. That is a very different environment to the one in which most accountancy firms have hitherto operated.

Maintaining the status quo is not something many firms would be happy to accept. It certainly isn’t how private equity delivers value to investors.

Unfortunately, businesses generally tend not to be very good at change. Research published by Harvard Business Review several years ago estimated that something like 70% of deals do not deliver the intended value.

That is not because deals are ill-conceived or because the management team did not know what it was doing. Rather, in the clamour to integrate services, systems and finances, the role of people and the importance of specific change management expertise is usually overlooked.

For accountancy firms which are not quite at the scale of a billion-pound buyout, there is perhaps a temptation to believe that the complexities of change may not apply to quite the same extent. They do. If the point isn’t already clear, private equity investment, by its very nature, brings change on a scale very few accountancy firms will ever have experienced.

So, given these changes, what should leaders of accountancy firms consider before a private equity investment? We suggest the following three for starters:

• go into the deal with your eyes wide open. Have an honest conversation with yourself at the start;
• the success of the deal is driven by a balance between logic and emotional; and
• accept that change needs resource and commitment.

Honest conversations

Before any deal is done, partners must get together and have a really honest conversation about how life might look post-transaction and if they are really, truthfully ready for all that might entail.

Do not think things will roll along the way they always have; that is not what you’ve signed up for. You may have to recalibrate your thinking on what constitutes good performance.

What may have previously been considered a good year could easily look like underperformance post-deal. And ‘good’ isn’t really the right yardstick once a deal has been done.

With a three-to-five-year investment cycle in most cases, private equity partners are looking for a pretty consistent run of ‘exceptional’.

When weighing up a deal, consider what you are going to lose. Partners in professional services firms operate with a unique autonomy. Once a deal with a private equity partner is agreed, the old autonomy changes dramatically.

Once a major shareholder with significant influence over how the firm is run onboard, this changes how decisions are made and how people are remunerated. Even if this is understood philosophically, the reality of it can be a shock to the system.

Psychological impact

This may sound odd, but partners should expect to grieve for how things were. Having observed these transactions many times over – and having been directly involved in a private equity buyout of an accountancy firm – we have witnessed the very real emotional wrench of a deal.

Acknowledging this loss is an important part of being able to fully embrace the opportunity which lies ahead.

Many partners will have been in the firm for decades and see it as part of their personal life story. Why wouldn’t a wholesale change lead to emotional upheaval? Many choose to retire rather than summon the energy for a lengthy period of full-on change; for others, the change is an opportunity to play a role in something significant.

Change is a full-time gig

What tends to happen after a deal is that responsibility for change is done off the side of someone’s desk; a rising star partner (or a less-busy one) is given the dubious honour of leading change with little or no experience of doing so.

There usually follows 12-18 months of gradually dawning realisation that change is a full-time gig, before the business agrees to bring in dedicated resource.

Put significant time and effort into communicating with the rest of the business early and often. Be honest. Your teams are smart enough to realise there is no land of milk and honey, so give them the full picture of the opportunity as well as how things are going to change.

Keep this up once the deal completes and things are underway, even when times are tougher than expected. People can deal with bad news, but radio silence is usually counterproductive.

Getting people to come with on the journey is probably the key challenge, but those running the firm need to be clear on what that journey is going to look like.

The proposed changes will have a significant impact on colleagues’ ability to effect the change while delivering business-as-usual. If you want teams to follow you into this new world, they need to see that the leaders know where they are going.

Private equity investment brings with it huge opportunities, which is why it is playing a bigger role in the future of the UK accountancy market. Preparing for and managing the change is the part most organisations tend to miss, but getting it right will give the business an advantage that few firms ever manage to fully realise.

About the authors

Lesley Fordyce and Mark Bell, change directors at Equator, the digital transformation consultancy

Article appeared in Business and Accountancy Daily

Alongside this, the total disclosed deal value also rose from £12.5bn in 2023 to £20.2bn in 2024

M&A activity in the UK’s financial services industry picked up in 2024, with a 26% year-on-year increase in the number of deals, according to data from EY.

UK banks, insurers and asset managers publicly disclosed 380 M&A deals in 2024.

This was the highest annual volume since 2012 compared to 272 deals in 2023.

Alongside this, the total disclosed deal value also rose from £12.5bn in 2023 to £20.2bn in 2024.

The number of UK wealth and asset management deals increased from 107 in 2023 to 122 in 2024, with total publicly disclosed deal value rising from £2.1bn in 2023 to £9.3bn in 2024.

The number of non-UK firms acquiring UK targets rose from 54 in 2023 to 74 in 2024, however the total disclosed value decreased from £6.7bn in 2023 to £3.9bn in 2024.

As for UK firms acquiring overseas targets, this rose from 65 deals in 2023 to 97 deals in 2024, with an overall deal value remaining the flat at £1.7bn.

Damian Hourquebie, UK financial services strategy and transactions leader at EY, said: “UK financial services M&A activity reached its highest annual volume in more than a decade in 2024, as material signs of economic recovery lifted market confidence, valuations rose, and inbound deals increased.

“While there are real signs for optimism, a sense of macroeconomic uncertainty and geopolitical tensions further abroad could create headwinds as we look to the year ahead. However, if the UK’s economic outlook continues to gradually improve as expected, we anticipate the focus on M&A activity will continue throughout 2025 as confidence grows and firms accelerate plans to transform.”Today1 week ago

Writes Accountancy Today

The Financial Reporting Council plans no additional staff hires in the next 12 months as it reins in costs after double hit from ‘unexpectedly high’ public sector pay rises and next year’s national insurance hike

In a change of direction and in line with successive governments’ desires to move the regulator out of London and reduce its London-centric focus, the FRC will build up its dual-centre operation with an expansion of the new Birmingham office, adding that it would ‘skew’ its recruitment policy towards hires outside of London.

The regulator plans to move offices when the 10-year lease on its space in London Wall in the City of London expires next year, relocating to Harbour Exchange in Canary Wharf. The last time the FRC relocated in 2014 the move cost £500,000 due to capital costs and fitting out the space.

The annual budget for 2025-26 will be £74m, up 3.5% from £71.5m year on year, including running costs for the UK Endorsement Board (UKEB).

Headcount will be cut to 486, marking a 3% reduction in staff numbers, while FRC noted that it was affected by ‘an unexpectedly high public sector pay settlement’ which hiked pay increases this year.

In addition, the FRC said its budget had been ‘impacted by the change to employer’s NICs from April 2025, so to keep our overall 2025-26 budget increase as close to inflation as possible we have also sought savings in non-staff costs’.

The FRC has allocated £3m in the budget for 2025-26 to cover the higher staff costs.

The 2025-26 financial year will see a 9% increase in fees for levy payers in 2025-26, according to the FRC’s draft annual plan and budget, which has been issued for consultation with stakeholders.

Despite the above inflation levy increase, the FRC stated: ‘The FRC remains mindful of the current economic environment and is committed to avoiding unnecessary cost increases for levy payers’, adding that the rise in the levy reflects the ‘costs of core regulatory functions, in particular our corporate reporting review programme’.

For listed entities, the levies are calculated based on their market capitalisation at the end of September 2024, while latest turnover figure is used for other entities.

In terms of priorities for the next three years, the FRC said transition to a new, powerful regulator with statutory powers as the Audit, Governance and Reporting Authority (ARGA) would be pivotal. It also stressed that it would be pursuing an ‘evolved approach to supervision of audit firms and a review of enforcement procedures’.

‘To be effective we need a modernised set of statutory authorities and powers. John Kingman’s 2018 review shone a light on the serious gaps within our current authorities and remit,’ the FRC stated.

‘We welcome the government’s commitment in the July 2024 King’s Speech and we will work with DBT as they bring forward draft legislation for pre-legislative scrutiny. Our strategy has been developed to remain relevant regardless of the timing of legislation.’

The government is expected to release final plans for sweeping audit reform by the end of March 2025, but recently confirmed that ARGA will not be in place until 2028 at the earliest.

A key priority will be improving the quality of audit outside Big Four and Tier 1 firms, with an emphasis on closing the gap between the largest audit firms and the challengers ranked as Tier 2 and 3 firms, which has widened, not narrowed, in recent years. But the FRC warned that ‘the largest firms, which have in recent years enhanced their audit quality, cannot rest on their laurels’.

It will also keep close watch of the growing prevalence of private equity investment in the accountancy sector and how this affects quality and resilience of firms, and whether this is affecting the overall quality of audit. Despite this consolidation driven by private equity, the FRC warned that audit competition was limited and it will be monitoring this closely, adding: ‘Even the largest [firms] continue to face challenges competing head on with the Big Four owing to their scale, deeper pools of expertise and access to investment’.

Going forward, there will also be a focus on technology to improve productivity and effectiveness, with investment earmarked for artificial intelligence (AI) and technology, and expansion of the Sandbox initiative to develop innovative approaches to audit work.

‘We want a step change in this period in how we use and exploit technology, data and information management within our organisation,’ according to the FRC strategy plan.

The head of the FRC, Richard Moriarty said: ‘Since taking on the role of CEO a little over a year ago, I have focused on ensuring the FRC is restless at seeking to improve the way it delivers its public interest purpose and supports UK economic growth and investment. Our draft three-year strategy and draft plan and budget for 2025/26 embody this approach.

‘The strategy includes the FRC’s continued commitment to uphold high standards of corporate governance, corporate reporting, audit, and actuarial work to ensure trust and confidence in businesses across the UK.

‘This in turn enables them to attract investment and grow as well as maintain broader stakeholder support. 

‘The strategy also includes important commitments to review our regulation to ensure it is effective, proportionate and best designed for the future.’

Sara White Business and Accountancy Daily