The Big Four accounting firms (Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG) have been growing through acquisitions in recent years, and branching out to consulting and advisory services. They have acquired boutique consulting firms, where profit margins are generally higher, to improve competitiveness and broaden services. This has helped offset increased competition in the saturated audit and tax market through a stronger presence in the growing management consulting industry. In 2016-17, accounting services generated revenue of $19 billion, compared with $27 billion in management consulting.
This shift in strategy has caused a period of consolidation, with the Big Four acquiring smaller consulting firms to increase client bases, market shares and exposure to different markets. As a result of this consolidation and increased competition among players, revenue for management consulting is expected to grow by an annualised 1.8% over the five years through 2017-18, to reach $28.4 billion.
Over the past five years, due to technological advancements and the popularity of digital services, management consultants have introduced new products and services, including analytics services and technology consulting. Demand for IT services is anticipated to benefit the industry, as it will likely foster flow-on work for management consulting companies and large firms generally provide these services to clients simultaneously. Furthermore, consultants are expected to increasingly rely on analytics and particularly services such as analytical software that are vital to businesses looking to understand changing consumer preferences.
In the Australian Financial Review’s Top 500 Private Companies list, published in September, PricewaterhouseCoopers (PwC) was ranked number 11. In 2016-17, the company’s Australia-related revenue grew by 10.4% to $2.12 billion. PwC’s strong growth in advisory services, and steady growth in traditional assurance and tax services contributed to the firm’s growth. In November 2016, the firm acquired Melbourne-based Strategic Intelligent Group, a consulting firm that calculates and predicts value capture from new infrastructure projects.
Deloitte Touche Tohmatsu, trading as Deloitte, jumped from number 22 to 17 in its Top 500 Private Companies ranking, with a revenue increase of 15.0% in 2016-17, to reach $1.76 billion. Over the past five years, the firm’s advisory services have largely driven Deloitte’s strong revenue growth, and supported its audit and tax services. Deloitte has made several acquisitions in recent years. In May 2017, the firm continued its expansion in the technology sector by acquiring its sixth technology company in two years. This was Strut Digital, a managed services provider specialising in development and operations.
Growth among all the Big Four firms has demonstrates the need for companies to grow through acquisitions and diversification to remain competitive. New multi-disciplinary services aim to transform companies into one-stop shops for consulting. This highlights the importance of firms increasing their technological expertise to capitalise on technological trends, which is expected to contribute to wider profit margins among the Big Four over the next five years.
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Deloitte Touche Tohmatsu