Big four advisory cuts do not reflect mid-tier market

The recent reductions in advisory services by KPMG and Deloitte do not reflect the entire accounting industry, according to Lee Humble, UK head of corporate finance at Azets. 

Last week (October 17), it was reported by the Financial Times that KPMG would cut 7% of its deal advisory team weeks after it was revealed that Deloitte would cut 800 advisory roles.   

“Risk remains high across a lot of sectors and every transaction needs a considered and methodical approach, but there is a hunger out there from acquirers and investors,” said Humble.

Despite a tough time in the deal advisory market, Humble stated that Azets has experienced record results in the first quarter of the current financial year and has increased its finance team to support the demand for its services. 

A spokeswoman from KPMG UK said in a statement that a challenging economic environment had “driven a softening in a number of markets, including the deals market”. 

“These conditions have impacted demand in certain areas, as some clients have chosen to pause or delay projects,” she says.  

This was echoed by Humble who noted that deals are taking far longer than normal, with the due diligence processes far more in-depth.  

“Coupled with a high-cost environment for debt which is inevitably deterring a portion of buyers who may now struggle to attract sufficient leverage to execute transactions,” he says.  

Additionally, in August, EY announced it was planning a small round of staff layoffs and told its workforce that a large pay rise and bonuses would be unlikely this year.   

Mid-market ‘holding strong’  

While the effects of the advisory market dwindling has affected firms of all sizes, Humble stated that mid-market operators are “holding strong” and have shown resilience during the economic uncertainty.   

“The IPO (Initial Public Offering) landscape has been troublesome and has impacted the larger deal flow, but mid-market players remain active,” he added.    

Earlier this year in the US, the big four firms all announced huge cuts to their advisory teams.  John Thompson, founder and managing director at Complete Advisory Solution UK told Accountancy Age in May that the big four were playing a “different game” to the rest of the marketplace.   

Unlike the larger firms which are usually divided into silos, smaller firms would be unwilling to do this because they are much more client-focused, Thompson explains.   

Approximately 1,200 individuals at Deloitte in the US were affected by the layoffs in April.  

Will the market pick up?  

The UK’s general election will occur by January 2025; the outcome of it, in conjunction with changing tax regimes, will play a big role in determining how the market performs, Humble argued.   

Due to economic uncertainty, clients have reduced their demand for consulting services, and a lack of merger and acquisition transactions has negatively impacted deal advisory work, according to the FT’s report.  

PWC revealed it had generated a global record revenue of $53.1 billion in the fiscal year ending on June 30th. However, the firm’s revenue trailed behind its Big Four competitors, Deloitte and EY who both saw annual growth of 14.9 per cent and 14.2 per cent, respectively.

“The short term is likely to remain tricky, but taking advice from well versed and connected advisors will make all the difference,” Humble noted.