4 January 2016
One-stop shop: Traditional accounting firms diversify to gain market share
Accounting firms are diversifying their offerings beyond traditional auditing in a bid to
offer clients a range of services, which is threatening smaller niche firms.
Large accounting firms are diversifying their services and becoming one-stop shops that pose
a threat to smaller firms in niche markets. As the market for audit services have become
increasingly saturated among accounting firms, larger firms such as PricewaterhouseCoopers
(PwC) and Deloitte have undertaken aggressive acquisition strategies to provide a range of
services beyond traditional auditing. The accounting services industry is in the mature phase
of its life cycle, with larger firms pursuing growth by acquiring smaller companies that
provide niche services. These services include management consulting, legal services and
information technology-related services. These non-traditional services are generally growing
at a faster rate than basic auditing services as clients are taking a more risk-adverse approach
and wanting accountants to provide a comprehensive suite of services that offer value for
money. IBISWorld expects that these extra service lines have larger profit margins than audit
services as they are tailored to clients’ needs.
PwC has aggressively diversified its services over the past two years. In 2014, PwC acquired
Booz and Co, a large US-based management consulting firm that now trades as Strategy&.
PwC boosted its legal service offerings following a merger with LCR Advisory, a boutique
advisory firm. In the past 12 months, PwC has hired 13 lawyers from top and mid-tier law
firms. The growth of legal services among traditional accounting firms is expected to threaten
smaller law firms. The performance of PwC’s accounting services segment is expected to
fluctuate over the five years through 2015-16. However, with the diversification of service
lines, PwC’s total revenue increased by a reported 10.0% in 2014-15.
Deloitte Touche Tohmatsu has also expanded its services to supplement core operations and
capture greater market share. Deloitte has continued to expand its presence in the information
technology sector with the acquisition of Dataweave, Qubit Consulting and Cloud Solutions
Group between 2014 and 2015. Deloitte also acquired Canberra’s Analytics Group to obtain
more work in the public sector. Most of its services fall under management consulting, which
includes consulting on financial performance, operations, and strategy and risk. IBISWorld
estimates that consulting-related services have higher profit margins than audit services.
Deloitte’s revenue derived from management consulting is expected to increase by 5.5% in
2015-16. Similar to PwC, Deloitte’s performance in accounting services has fluctuated over
the past five years. However, with the acquisition of several niche service firms, Deloitte’s
overall revenue increased by a reported 15.0% in 2014-15.
Other large accounting firms are also following similar trends. KPMG acquired consulting
firms The Performance Clinic and Banarra in 2015. Similarly, Ernst and Young made seven
acquisitions to expand its advisory service line. This has also affected recruitment in the
sector, as firms are looking to hire people with a range of qualifications beyond a basic
accounting degree. Furthermore, mid-tier accounting firms are also expanding. For example,
Grant Thornton acquired digital advisory firm Consult Point Group. However, the
diversification of accounting firms’ services poses a threat to smaller accounting firms and
has resulted in mergers between mid-tier firms such as ShineWing and Moore Stephens in
Melbourne, and Pitcher Partners and Moore Stephens in Sydney. These mergers aim to help
mid-tier accounting firms remain competitive in a changing business environment.
Over the next five years, larger accounting firms are expected to continue expanding their
services to remain competitive, pushing smaller firms out of niche markets. These firms are
expected to perform well as they can rely on the necessity of auditing services while also
providing extra services with wider profit margins.
Relevant Companies
PricewaterhouseCoopers (PwC)
Deloitte Touche Tohmatsu
KPMG
Ernst & Young
Grant Thornton Australia Limited
Moore Stephens Australia
Pitcher Partners