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Title:Deloitte to merge 9 of its European member firms
Source:Financial Times
Deloitte has put its money on closer European integration and is merging nine of its member firms across the region in a “Brexit-agnostic” deal that was conceived before the UK voted to leave the bloc.
The “big four” professional services group is combining its Belgian, Danish, Dutch, Finnish, Icelandic, Norwegian and Swedish member firms with its UK and Swiss operations to create Deloitte North West Europe, it announced on Tuesday.
“This is client driven,” said David Sproul, Deloitte’s UK chief executive who is the chief executive-elect of Deloitte North West Europe. “The issues our clients are facing are around globalisation, growth and digitalisation of business models [ …] From a client needs point of view, Brexit hasn’t changed anything.”
As part of the merger, Deloitte plans to invest €200m in the combined business over the next three years. It is looking to hire partners and teams, and make acquisitions particularly around areas such as consulting and digital. Technology-related activity makes up a growing part of the big four and they are pouring money into areas like cyber security, data analytics and artificial intelligence — expanding far beyond their roots in audit.
The big four professional services firms — PwC, Deloitte, EY and KPMG — are structured as networks of legally separate national partnerships, which retain a significant degree of autonomy even though they share numerous co-operative agreements.
Deloitte’s move marks a departure from the past, where closer integration of large accountancy networks has historically been avoided. Networks like to be able to distance themselves from a member firm if it runs into financial or reputational difficulties, in order to keep the global brand intact.
More recently, cross-border activity and the need for multinational companies to co-ordinate areas such as cyber security and digital strategy have meant that clients have encouraged closer integration between countries. The Financial Times reported in May last year that Deloitte was considering acquiring or merging with member firms from the Benelux region.
“I think Deloitte's merger makes a lot of sense,” said Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales. “It’s a natural response from professional services firms to a global world. It’s a good vote for globalisation and internationalisation in a world where we have to justify the benefits of free trade because we can see protectionism creeping in.”
Deloitte North West Europe will come into effect on June 1, will have 28,000 partners and people, and more than €5bn in annual revenue. Mr Sproul says the target is to grow this to €8bn-€9bn by 2020. It will be headquartered in the UK and regulated by the Financial Reporting Council.
Mr Sproul said the deal was “Brexit agnostic”. He added: “Brexit has amplified the rationale for it. Brexit won’t reduce the appetite of UK businesses to invest across Europe or Deloitte’s appetite to play on a global business [ …] Success of this isn’t dependent on free movement of people in and out of the UK.”
Europe is Deloitte’s fastest-growing region. Its UK revenues, which include the Swiss operation, grew 11.2 per cent in the 12 months to May 31 and surpassed £3bn for the first time. The UK member firm’s revenues are split between four divisions: consulting (27.9 per cent), tax (24.1 per cent), financial advisory (17.5 per cent), and audit and risk advisory (30.4 per cent). Globally, Deloitte reported $36.8bn revenues in 2016.
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