Ivan Francisco Moreno-Virrey, A042 847 549 (BIA Jan. 23, 2014)
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AFRGA1 A042 AFR Wednesday 7 November 2018 The Australian Financial Review | www.afr.com 42 Accounting & Consulting Firms follow the big four into advisory SOURCE: FINANCIAL REVIEW TOP 100 ACCOUNTING FIRMS 2018 Firms evolve * % of respondents that saw growth in this division, firms could select multiple divisions Impact of technology developments over past 5 years Negatively disrupted No impact Positively disrupted Artificial intelligence Customer relationship mgmt Project / task mgmt Data analytics Smartphone technology Realtime data sharing Automated processes Cloud computing for firm Cloud computing for clients 98 96 94 83 78 71 61 61 36 15 22 27 37 39 61 Fastest growing divisions within the firms* Advisory services SMSF / retirement planning Tax compliance Wealth mgmt services Cash flow projections Assurance services Purchase / sale of businesses Analytics of data / advice Financial structuring Valuation 27 23 20 16 14 14 11 82 46 41 Firms outside the top 10, perhaps outside the top four actually, are struggling to capitalise on opportunities from new technologies. David Smith, Smithlink director Jadeja Partners’ Magnus Yoshikawa, left, says the market for accountants wanting to sell their firms is healthy, and Smithlink director David Smith says M&A activity is helping drive growth. Exclusive Edmund Tadros Special Report liftout q Q To explore Top 100 database, visit afr.com Top 100 A ccounting Firms The nation’s largest firms Accounting firms that have emulated big four firms Deloitte, EY, KPMG and PwC by moving into non-accounting services have been the big winners in a year when the Top 100 firms posted more than $11 billion in revenue. The Australian Financial Review Top 100 Accounting Firms for 2018 reveals a jump in the percentage of Top 100 firms that reported advisory is the fastest growing part of the business. More than 80 per cent of firms in the list nominated business, tax and advis- ory services as among their fastest growing divisions. Acquisitions and mergers also con- tinue to drive expansion at many firms even as growth in core compliance work has slowed. The firms in the Top 100 list posted total revenue of $11.25 billion in the past financial year, up almost 10 per cent on the previous year. This compares to growth of 1.5 per cent in the wider accounting industry, according to research house IBISWorld. The majority, 92 of the Top 100, saw year-on-year revenue growth increase in the 2018 financial year with boutique firm Rubik3 posting the fastest rate of growth, 130 per cent, to $11 million in billings. The level of growth varied markedly by segment. Overall, 37 firms posted revenue increases of more than 10 per cent, 55 firms posted growth of up to 10 per cent and eight firms saw their revenue shrink during the 2018 finan- cial year. The big four firms accounted for almost 70 per cent, or $7.8 billion, of all revenue generated by the Top 100 and grew by an average of 11.5 per cent, thanks to their surging consulting divi- sions. Statutory audit has become just one part, and a relatively small part at that, of these professional services juggernauts. The next 10 largest firms, those earn- ing between $100 million and $375 mil- lion in revenue, had the lowest average growth rate of any segment, a modest 4 per cent over the year. ‘‘These mid-tier firms are experien- cing a crunch, struggling to compete with top-tier firms and rising stars, for example Altus Financial and Kelly + Partners,’’ said Dale Crosby, an industry consultant who advises accounting firms about technology. BDO posted the highest growth of any firm in this segment, with revenue up 8.7 per cent to $268 million, as it pushed further into audit and advisory and ahead of its much-delayed vote to nationalise. PKF was close behind with revenue up 8.5 per cent to $117 million on the back of increased advisory work. CEO and chairman Norm Draper said PKF would generate at least the same level of revenue next year despite losing one of its two Perth offices in July to rival Hall Chadwick. Mergers and acquisitions were the driving force behind many of the 37 firms on the list growing faster than 10 per cent a year, Mr Crosby said. ‘‘The target growth rate [for firms] is between 5 per cent and 10 per cent, through fee increase where possible. Most firms are keen for fees, but also hard-nosed about the type of clients they are taking on,’’ he said. David Smith, who consults to the accounting industry, agreed that M&A activity was helping drive growth and growth from core compliance services was elusive. ‘‘There are lots of tuck-in style acquisitions going on, so overall organic growth is much lower,’’ Mr Smith said. ‘‘Generally, in all sectors, it remains difficult to achieve high growth from core compliance services although 2018 has been a stronger year for most firms.’’ An example of acquisition-driven growth is Moore Stephens. The firm was the star performer in the $20 mil- lion to $100 million segment, growing revenue by 47 per cent to $74 million after two smaller firms with combined billings of $20 million joined the net- work. The rebuilding effort, driven by CEO Peter Antonius, means the firm once again has a national presence after a series of office departures meant annual billings had fallen from $136 million in 2011-12. Hall Chadwick, Kelly + Partners and Walker Wayland have also made M&A moves this year. The market for accountants wanting to sell their firms is also healthy with good practices able to obtain a pre- mium, said Magnus Yoshikawa, the dir- ector of Jadeja Partners and a specialist in accounting merger and acquisitions. ‘‘Divestments have been fantastic for accountants looking to exit with buyers in all sections of the Top 100,’’ he said. ‘‘Everyone is seeking good practices and banks are still lending to the profes- sion. Premium prices are being paid in capitals with a similar outcome for good practices in regional and rural areas.’’ Almost every firm in the Top 100, produced by the Financial Review in partnership with Chartered Account- ants ANZ, said the adoption of cloud computing was a positive development for clients and their firm. One boutique regional accounting firm in the Top 100, Doyle Partners, uses cloud accounting software to open a ‘‘live portal’’ into client data and offer real-time advice to clients. The firm, which has four partners and 23 staff, posted a revenue increase of of 14 per cent to more than $5 million over the past financial year. But many firms confessed that they still struggled to make use of practice management software to improve their operations and provide enhanced ser- vices to clients, Mr Smith said. ‘‘Firms outside the top 10, perhaps outside the top four actually, are strug- gling to capitalise on opportunities from new technologies such as data analytics, artificial intelligence and machine learning,’’ he said. Most firms did not have the capacity to fund their own research and devel- opment and were ‘‘highly dependant on the industry’s technology suppliers for solutions’’. ‘‘The firms outside the big four are quite dependant on the five major sup- pliers of practice technology – MYOB, Xero, APS, Sage Handisoft and CCH iFirm,’’ Mr Smith said. ‘‘Some of these suppliers are strug- gling to redevelop their legacy software for the cloud computing paradigm. Some do not have their suite built out effectively to have a compelling solu- tion. Many firms are frustrated with this lack of progress.’’ The firms earning revenue between $20 million and $100 million grew at a healthy 9 per cent while earning a col- lective $993 million. Synergy Group Australia recorded the second fastest growth, with rev- enue up 42 per cent to $39 million. The listed Kelly + Partners posted revenue up 41 per cent to $35 million. Meanwhile, the 64 firms earning between $4 million and $20 million earned almost $600 million and grew at about 10 per cent over the 2018 finan- cial year. ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Edited by Edmund Tadros: [email protected] Twitter: @edmundtadros Insolvency market slows Insolvency firm KordaMentha was one of eight firms that posted a revenue decline in this year’s Top 100. The firm saw revenue contract by 4 per cent to $115 million over the 2018 financial year. The drop in revenue at the firm has come amid a broader slowdown in the insolvency market, which saw PwC purchase insolvency firm PPB Advisory for a knock-down price in June. ‘‘Restructuring, turnaround and insolvency is a cyclical business, hence why overall a small decline. The overall market is probably down 30 to 40 per cent,’’ KordaMentha co- founder Mark Korda said. This means there are now just two other significant independent insolvency firms in the Australian market, McGrathNicol, which posted revenue up 7.7 per cent to about $70 million, and Ferrier Hodgson, which declined to take part in the Top 100 list. The insolvency market shake-up might not be over yet. Last week, McGrathNicol poached two high- earning partners from Ferrier Hodgson. ‘Holistic advice’ drives growth Accountants and wealth advisers CAAA were the second-fastest growing firm in the Top 100 list with revenue up 48 per cent to $9.6 million. The CEO of CAAA, Fleming Stojanovski, said the high growth was partly the result of the firm moving to provide clients with a broader range of accounting and tax advice. ‘‘We have reconfigured our business as a financial concierge service. We’re going from the standard tax and compliance work to getting clients to take a more holistic view of their affairs.’’
Transcript of TheAustralianFinancialReview| Wednesday 7 ... · AFRGA1 A042 Wednesday 7 November 2018 AFR...
AFRGA1 A042
AFRWednesday 7 November 2018The Australian Financial Review | www.afr.com
42 Accounting & Consulting
Firms follow the big four into advisory
SOURCE: FINANCIAL REVIEW TOP 100 ACCOUNTING FIRMS 2018
Firms evolve
* % of respondents that saw growth in this division, firms could select multiple divisions
Impact of technology developments over past 5 years
Negatively disruptedNo impactPositively disrupted
Artificial intelligence
Customer relationship mgmt
Project / task mgmt
Data analytics
Smartphone technology
Realtime data sharing
Automated processes
Cloud computing for firm
Cloud computing for clients 98
96
94
83
78
71
61
61
36
15
22
27
37
39
61
Fastest growing divisions within the firms*
Advisory services
SMSF / retirement planning
Tax compliance
Wealth mgmt services
Cash flow projections
Assurance services
Purchase / sale of businesses
Analytics of data / advice
Financial structuring
Valuation
27
23
20
16
14
14
11
82
46
41
Firms outside the top 10, perhaps outside thetop four actually, are struggling to capitaliseon opportunities from new technologies.David Smith, Smithlink director
Jadeja Partners’ Magnus Yoshikawa, left, says the market for accountants wanting to sell their firms is healthy, and Smithlinkdirector David Smith says M&A activity is helping drive growth.
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Exclusive● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Edmund Tadros
� Special Report liftout
qQ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
To explore Top 100 database,visit afr.com● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Top 100AccountingFirmsThe nation’s largestfirms
Accounting firms that have emulatedbig four firms Deloitte, EY, KPMG andPwC by moving into non-accountingservices have been the big winners in ayear when the Top 100 firms postedmore than $11 billion in revenue.
The Australian Financial ReviewTop 100 Accounting Firms for 2018reveals a jump in the percentage ofTop 100 firms that reported advisory isthe fastest growing part of the business.More than 80 per cent of firms in thelist nominated business, tax and advis-ory services as among their fastestgrowing divisions.
Acquisitions and mergers also con-tinue to drive expansion at many firmseven as growth in core compliancework has slowed.
The firms in the Top 100 list postedtotal revenue of $11.25 billion in the pastfinancial year, up almost 10 per cent onthe previous year. This compares togrowth of 1.5 per cent in the wideraccounting industry, according toresearch house IBISWorld.
The majority, 92 of the Top 100, sawyear-on-year revenue growth increasein the 2018 financial year with boutiquefirm Rubik3 posting the fastest rate ofgrowth, 130 per cent, to $11 million inbillings.
The level of growth varied markedlyby segment. Overall, 37 firms postedrevenue increases of more than 10 percent, 55 firms posted growth of up to10 per cent and eight firms saw theirrevenue shrink during the 2018 finan-cial year.
The big four firms accounted foralmost 70 per cent, or $7.8 billion, of allrevenue generated by the Top 100 andgrew by an average of 11.5 per cent,thanks to their surging consulting divi-sions. Statutory audit has become justone part, and a relatively small partat that, of these professional servicesjuggernauts.
The next 10 largest firms, those earn-ing between $100 million and $375 mil-lion in revenue, had the lowest averagegrowth rate of any segment, a modest 4per cent over the year.
‘‘These mid-tier firms are experien-cing a crunch, struggling to competewith top-tier firms and rising stars, forexample Altus Financial and Kelly +Partners,’’ said Dale Crosby, anindustry consultant who advisesaccounting firms about technology.
BDO posted the highest growth ofany firm in this segment, with revenueup 8.7 per cent to $268 million, as itpushed further into audit and advisoryand ahead of its much-delayed vote tonationalise.
PKF was close behind with revenueup 8.5 per cent to $117 million on theback of increased advisory work. CEOand chairman Norm Draper said PKFwould generate at least the same levelof revenue next year despite losing oneof its two Perth offices in July to rivalHall Chadwick.
Mergers and acquisitions were thedriving force behind many of the 37firms on the list growing faster than10 per cent a year, Mr Crosby said.
‘‘The target growth rate [for firms] isbetween 5 per cent and 10 per cent,through fee increase where possible.Most firms are keen for fees, but alsohard-nosed about the type of clientsthey are taking on,’’ he said.
David Smith, who consults to theaccounting industry, agreed that M&A
activity was helping drive growth andgrowth from core compliance serviceswas elusive.
‘‘There are lots of tuck-in styleacquisitions going on, so overallorganic growth is much lower,’’ MrSmith said. ‘‘Generally, in all sectors, itremains difficult to achieve highgrowth from core compliance servicesalthough 2018 has been a stronger yearfor most firms.’’
An example of acquisition-drivengrowth is Moore Stephens. The firmwas the star performer in the $20 mil-lion to $100 million segment, growingrevenue by 47 per cent to $74 millionafter two smaller firms with combinedbillings of $20 million joined the net-work. The rebuilding effort, driven byCEO Peter Antonius, means the firmonce again has a national presenceafter a series of office departures meantannual billings had fallen from$136 million in 2011-12.
Hall Chadwick, Kelly + Partners andWalker Wayland have also made M&Amoves this year.
The market for accountants wantingto sell their firms is also healthy withgood practices able to obtain a pre-mium, said Magnus Yoshikawa, the dir-ector of Jadeja Partners and a specialist
in accounting merger and acquisitions.‘‘Divestments have been fantastic for
accountants looking to exit with buyersin all sections of the Top 100,’’ he said.
‘‘Everyone is seeking good practicesand banks are still lending to the profes-sion. Premium prices are being paid incapitals with a similar outcome for goodpractices in regional and rural areas.’’
Almost every firm in the Top 100,produced by the Financial Review inpartnership with Chartered Account-ants ANZ, said the adoption of cloudcomputing was a positive developmentfor clients and their firm.
One boutique regional accountingfirm in the Top 100, Doyle Partners,uses cloud accounting software to opena ‘‘live portal’’ into client data and offerreal-time advice to clients. The firm,which has four partners and 23 staff,posted a revenue increase of of 14 percent to more than $5 million over thepast financial year.
But many firms confessed that theystill struggled to make use of practicemanagement software to improve theiroperations and provide enhanced ser-vices to clients, Mr Smith said.
‘‘Firms outside the top 10, perhapsoutside the top four actually, are strug-gling to capitalise on opportunitiesfrom new technologies such as dataanalytics, artificial intelligence andmachine learning,’’ he said.
Most firms did not have the capacityto fund their own research and devel-opment and were ‘‘highly dependanton the industry’s technology suppliersfor solutions’’.
‘‘The firms outside the big four arequite dependant on the five major sup-pliers of practice technology – MYOB,Xero, APS, Sage Handisoft and CCHiFirm,’’ Mr Smith said.
‘‘Some of these suppliers are strug-gling to redevelop their legacy softwarefor the cloud computing paradigm.Some do not have their suite built outeffectively to have a compelling solu-tion. Many firms are frustrated withthis lack of progress.’’
The firms earning revenue between$20 million and $100 million grew at ahealthy 9 per cent while earning a col-lective $993 million.
Synergy Group Australia recordedthe second fastest growth, with rev-enue up 42 per cent to $39 million. Thelisted Kelly + Partners posted revenueup 41 per cent to $35 million.
Meanwhile, the 64 firms earningbetween $4 million and $20 millionearned almost $600 million and grewat about 10 per cent over the 2018 finan-cial year.
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Edited by Edmund Tadros: [email protected] Twitter: @edmundtadros
Insolvency market slowsInsolvency firm KordaMentha wasone of eight firms that posted arevenue decline in this year’s Top100.
The firm saw revenue contract by4 per cent to $115 million over the2018 financial year.
The drop in revenue at the firmhas come amid a broader slowdownin the insolvency market, which sawPwC purchase insolvency firm PPBAdvisory for a knock-down price inJune.
‘‘Restructuring, turnaround andinsolvency is a cyclical business,hence why overall a small decline.
The overall market is probably down30 to 40 per cent,’’ KordaMentha co-founder Mark Korda said.
This means there are now just twoother significant independentinsolvency firms in the Australianmarket, McGrathNicol, which postedrevenue up 7.7 per cent to about $70million, and Ferrier Hodgson, whichdeclined to take part in the Top 100list.
The insolvency market shake-upmight not be over yet. Last week,McGrathNicol poached two high-earning partners from FerrierHodgson.
‘Holistic advice’drives growthAccountants and wealth advisersCAAA were the second-fastestgrowing firm in the Top 100 listwith revenue up 48 per cent to $9.6million.
The CEO of CAAA, FlemingStojanovski, said the high growthwas partly the result of the firmmoving to provide clients with abroader range of accounting andtax advice.
‘‘We have reconfigured ourbusiness as a financial conciergeservice. We’re going from thestandard tax and compliance workto getting clients to take a moreholistic view of their affairs.’’
