BDO has been the largest of the mid-tier accounting networks for more than a decade.
Although the firm has recently grown significantly through acquisitions, “BDO’s strategy is absolutely not to become a Big 4 network,” says the company’s global CEO Martin van Roekel.
“Because then we still would be the smallest of the Big 5.”
Instead BDO will focus on what van Roekel believes is the firm’s distinctive position between the Big 4 and the rest of the mid-tier networks.
“We strongly believe that we have a unique position in the market by being able to offer more or less the same as the Big 4 networks but at the same time we are able to provide the same kind of quality service, personal attention and flexible approach that mid-tier firms are known for.”
Offering the best of both worlds and maintaining the typical BDO culture in the coming years will be paramount, even as the network is realizing planned further growth.
More recently, BDO has expanded through both acquisitions and organic growth. Van Roekel says that quite frequently a merger or acquisition also leads to the growth of existing services lines, because BDO’s specialized service areas are typically of interest to the clients of an acquired firm.
“For example, if I look at the U.S. firm where in the past year we have realized a growth of 22 to 23 percent, roughly half of that came from organic growth and the other half from mergers and acquisitions.”
Naturally, this organic development on the back of M&A transactions also depends on the health of the overall economy in the individual market.
BDO has a presence in 151 countries, which puts it on par with the Big 4 accounting networks and well ahead of other mid-tier players that have a typical network coverage of 100 to 130 countries, often including correspondent firms that are not official members of the network.
Van Roekel expects BDO’s global coverage to extend to up to 160 countries during the next two years provided that the economies of the host countries justify the establishment of a BDO firm.
But doing a deal is one thing, the chief executive says; maintaining the company’s culture and fostering it in new network members is another. Ensuring that the cultural aspects of merging firms are aligned and delivering on corporate culture and service quality targets is an important element of the growth strategy.
In most cases, BDO attempts to link smaller new network firms with a more sizeable firm that is neighboring its territory or market. This firm then takes responsibility for the development of the new firm, for example by investing into the partner company’s risk management and talent recruitment.
“Last week we introduced a firm in Rwanda in the heart of Africa and that firm is part of BDO East Africa where firms in five territories work closely together, have cross-border investments in each other, and where joint training and development is done,” he explains.
Considering BDO’s geographical spread, the network’s future growth will come from different areas, depending on the development of the underlying economy in individual markets and the need for various services.
Overall, van Roekel expects the network to grow in all three main regions – the Americas; Europe Middle East and Africa; and Asia Pacific – yet the sources of growth will be mixed.
In the Americas, the network has grown aggressively through acquisitions and BDO has doubled its revenue within three years. It was also the net winner of new audit mandates among all accounting firms. This combination of M&A and organic growth will continue, he predicts.
In Europe, the stagnating economy in most markets means that most of the network’s growth will have to come from acquiring new firms.
The European market is also being shaken up by new regulations that are forcing publicly listed companies to tender their audit mandates more frequently and new rules that restrict accounting firms in terms of the non-audit services they can provide to their audit clients.
Although the new regulations have not yet been transposed into the national laws of each European Union member state, BDO is already seeing benefits as most companies are not waiting for the new laws to take effect, says van Roekel.
“We have seen a number of nice wins, not always in audit but quite often in the non-audit services – the tax and advisory services where most publicly listed companies were already making some split between the audit service firm and the firm providing non-audit services.”
Given the flexibility that national legislators have in implementing tighter regulations than the mandatory parts of the European directives, van Roekel says, large multinationals are taking the safe approach by adopting the most restrictive rules group-wide, irrespective of the individual laws in each European market.
“Right now, most companies make a complete split, mainly because of the uncertainty in terms of what all individual member states are going to do exactly,” he says.
In the Middle East and Africa, the chief executive believes BDO will benefit from an early mover advantage by adding new territories, ready to take advantage of the anticipated economic expansion when it occurs.
In the Asia/Pacific region, in turn, the overall economy is the driving factor for the network.
Van Roekel notes that in China, where BDO is placed ahead of two Big 4 firms with 8,000 partners and staff and $450 million in revenue, growth will continue as the Chinese economy expands. And countries like Indonesia, Singapore, Thailand, Vietnam and the Philippines will attract considerable foreign direct investment as cheap manufacturing operations are moved from the more expensive Chinese market into these countries.
In Asia/Pacific, the market as a whole for audit is still growing and as a result audit fees are increasing, while at the same time tax and advisory services in emerging markets are expanding rapidly as well.
“For example, if you look at China, tax services existed but with a growing number of Chinese companies investing abroad, taxes are becoming more important. And with the policy of the new Chinese president you see there is a much more tight oversight of tax compliance. That increases the need for tax services as well.”
Meanwhile, audit services, the bread and butter of the accounting industry, are not growing as fast as other service lines in the large developed markets, and in Europe audit services are not growing at all. This requires tax and advisory services to become the driver of growth for accounting firms in developed markets as well.
The focus on tax services comes at a time when the Big 4 accounting firms have come under scrutiny for the tax avoidance advice they provided to large multinationals in recent years.
Van Roekel says it constitutes a reputational issue for the entire tax profession but it is difficult to escape the economic realities that are shaped by existing tax rules.
“Whether we like it or not and whether governments like it or not, tax is seen as a cost for companies when making an investment decision,” he says.
As long as countries use tax and tax advantages “as a competitive weapon” to attract new investments and new companies, it is difficult for any firm to give tax advice without being criticized for it.
“If a company chooses the most attractive option available, then of course you can accuse the firms that have provided that advice. But at the same we have to realize that as long as everyone acts in line with the existing rules and legislation and is dealing with all the appropriate codes of ethics, then I am wondering who is to be blamed for it?” he asks.
The large six accounting networks, including BDO, have offered their help to the OECD and a sub-commission of the EU that is investigating how to deal with taxation in the EU in a consistent and constructive basis.
“We can fight against what is happening but we think it is much more appropriate to discuss with the various groups what the existing situation is, to explain what is happening and to create the right understanding,” he argues.
“Ultimately, global organizations like the OECD and the political leaders have to decide what kind of changes should happen.”