Saturday, May 12, 2007

Canada's Number 5 and 6 Accounting Firms Call Off Merger Talks

We had blogged earlier that the number 5 and number 6 accounting firms in Canada, namely BDO Dunwoody LLP and Grant Thornton LLP had started talks to merge their practices to become one of the largest accounting firms in the country and a clear alternative to the Big Four firms. Culture clash and amicable settlement of monies/rights between partners were two potential risks which we thought could put a spanner in the works.

Now the Big Four firms can rest with some ease.

Yesterday we see news reports that these firms’ Boards announced plans to end their merger discussions. There was no specific reasons stated which led to cessation of discussions. While the advantages of merger were clear, so it appeared did the challenges of coming together.

The press release says,” The due diligence process had proceeded amicably and with the cooperation of both firms, but despite best efforts the two firms were unable to overcome the challenges, and therefore were unable to complete the process to the satisfaction of all

Somehow we believe that the parties could not fully put their heads together on how power, organization and profits were going to be shared. We look to our readers to see if they have any insights on why this merger did not go through as planned.

1 comment:

Anonymous said...

This seemed like a great idea--BDO was weak in Quebec and Atlantic Canada and GT was strong there. But this was probably doomed from the start. Both BDO and GT had their own international affiliates and without a worldwide merger, they would have needed to choose one over the other. So each stood to lose a lot of international referral work if they merged. BDO has a much more decentralized structure than GT. GT took more from each partner for the central "pot", which may have been hard for BDO to swallow. BDO has offices in every whistle stop in Ontario--some with only one partner. Likewise GT has offices in every whistle stop in Atlantic Canada. BDO has always had an aggessive management style. When they merged with Ward Mallette, they called it BDO Dunwoody Ward Mallette for awhile, but eventually WM disappeared from the name. BDO generally puts work ahead of personal life for partners. At one time, BDO actually had a written guideline that partnership meant enduring "personal inconvenience" for the sake of the firm. But the kicker was probabaly the pension arrangements that BDO had, with several partners entitled to over $500K per year of pension payments; of course this is an unfunded liability. GT partners would have had to agree to guarantee funding for those payments. Also, BDO and GT are both schizophrenic firms. They each want to be the alternative to the Big 4, auditing public companies, but then how do you convince the one partner office in Wiarton or Wingham Ontario, population 2,400 each, to accept the risk of auditing billion dollar companies? Especially when one of the predecessor firms to GT, Pannell Kerr etc. almost went under in the 80s. Their bank actually called the Calgary office loans and the Calgary partners overdrew their capital accounts and ran off leaving the other partners to pay their bills. Lots of the partners from that era are still around and are gun shy.