Big 4 desert the mid market, again, and deepen their conflicts of interest

The FT reported yesterday that Deloitte has hired a former BNP executive as it seeks to move back into big-ticket investment banking, focusing on the FTSE 250 and FTSE 100. Similarly KPMG has hired from Deutsche Bank and PwC from Rothschild, as they all chase larger deals.

The article also highlights that, with the advent of forced periodic rotation of auditors, the Big 4 see a huge opportunity to market all kinds of other services to corporates, including consulting, tax advice, due diligence, and legal services.

Conflicted – and getting worse

Livingstone’s entrepreneurial client base has never been that comfortable with taking corporate finance advice from the Big 4, given the grey-suited institutional nature of these firms.

They have also been nervous of the massive conflicts of interest which emerge when your corporate finance adviser is trying to sell other services to your potential acquirers. How objective can they be, if they’re pitching next week for the buyer’s audit, or some due diligence, or consulting, or tax…

You want to know that your adviser is looking after your interests, not keeping one greedy eye on future business from the other side of the table.

Abandoning the mid–market?

But as the Big 4 chase the investment banks to do bigger deals – the smallest member of the FTSE 250, AO, has a current market cap of over £600m – they are again abandoning the mid-market (deals up to £250m), as they have done every time the economy has turned for the better.  It’s hard to build trusted long-term relationships with clients and prospective clients when your strategy towards the mid-market sounds like the hokey cokey.

Not even very good at it?

One interesting point the article makes is that “From 2010-15, the big four accounted for $8.2m [£5.2m] in UK M&A fees and had a total market share of 1.7 per cent.” It would seem that, in five years, the Big 4 together made less in UK M&A than our UK revenues each single year over that period.

While they employ a lot of very bright people, have big marketing budgets and strong brand names, and seem to be recruiting some big hitters into their corporate finance teams, they don’t actually seem to be doing very many deals. Perhaps that’s why they’re so excited about selling other services to big corporates.

Livingstone has been focused on mid-market corporate finance advice since its foundation nearly 40 years ago, and is scrupulous in avoiding conflicts of interest.

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