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Grant Thornton sells advisory business to 1825

The wealth unit, which has £1.7bn of assets under advice, consists of 100 employees, including 34 financial planners, all of whom will be joining 1825.

The deal, which has been rumoured for a few weeks, is reportedly an attempt by Grant Thornton to distance itself from potential conflicts of interest, and to “streamline its focus”.

Dave Dunckley, the recently appointed CEO of Grant Thornton UK, said, “As we increase our focus on our strategy to provide high quality audit, tax and advisory services to our core markets, it is clear the wealth advisory team’s growth potential would be best delivered by a business focused solely on the financial advice market.

“The team’s clients will undoubtedly be better served through 1825’s approach and proposition, with the businesses sharing a natural alignment in values and goals, so it makes practical sense for the team to be in an environment in which it can flourish. We wish Neil [Messenger] and the team continued success into the future.”

In the wake of proposals from the Competition and Markets Authority (CMA), and from the Kingman review, the accountancy profession in the UK is under increasingly sharp scrutiny. Grant Thornton in particular has come in for criticism over its audit work on Patisserie Valerie.

Last week the firm announced a major overhaul of its audit arm. The changes include a new Audit Quality Board, a £7m investment in people and technology, an independent review of audit at the firm, and new centres of excellence in London and Birmingham.

The deal is expected to be completed in Q4, 2019 and the terms remain undisclosed.

BDO PHOTO

Moore Stephens and BDO merger could pile pressure on big four

The big four accountancy firms are expected to come under pressure from a new rival following merger talks between BDO and Moore Stephens.

In a move designed to create a fifth firm capable of advising FTSE 100 firms, the new business would be larger than Grant Thornton, which has struggled to break into the lucrative market for advice work with Britain’s top corporations.

Talks between the two sides are understood to be advanced, though it was unclear over the weekend whether both sides would be ready to make an announcement this week.

The news comes at a critical moment for the industry, which has come under increased scrutiny in parliament following a series of scandals at companies such as BHS, Carillion and Patisserie Valerie.

The government called for a comprehensive review of Britain’s auditing industry earlier this year. The business secretary, Greg Clark, said it was “right to learn the lessons and apply them without delay” as he ordered the inquiry into competition within the industry where Deloitte, PwC, Ernst & Young and KPMG audit 98% of the UK’s largest listed companies.

Following Clark’s concerns, the Competition & Markets Authority (CMA), led by former Tory MP Lord (Andrew) Tyrie, began an investigation into quality and choice in the audit market last month.

A separate inquiry has also been launched into the audit industry by the parliamentary business committee, chaired by Labour’s Rachel Reeves.

Reeves has described the market as “broken” and is due to take evidence next month.

The big four have been hit with a series of fines following criticism of their work. The Financial Reporting Council, which overseas the auditing industry, fined PwC £6.5m in June over its auditing of collapsed department store chain BHS.

But the FRC only rebuked KPMG, the auditor of collapsed construction giant Carillion, after finding “a deterioration in the quality of the audits that we inspected to an unacceptable level”.

Accountancy firms have been accused of using their auditing arms as the springboard for lucrative advisory work fees, in breach of conflict of interest rules. The firms have denied any wrongdoing, but have failed to dispel the suspicion that senior audit professionals are compromised by the need to generate advisory income from their clients.

The merger of BDO and Moore Stephens is believed to have been approved by the equity partners in both firms. BDO employs 74,000 people worldwide, including 3,500 in Britain. It reported UK revenues of £456m last year. Moore Stephens has more than 2,000 staff and revenues of £181m. The companies merged their operations in South Africa in 2010.

The combined group would be bigger than Grant Thornton, which had UK revenues of £500m last year.

BDO, whose audit clients include the private equity tycoon Jon Moulton’s Better Capital, is the sixth-biggest accountancy firm by revenues, according to Accountancy Age.

It is led by managing partner Paul Eagland, who has called for a shake-up of the audit market in its submission to the CMA review. It said a cap of 80% should be imposed on the market share of the big four for FTSE 350 audits within three years.

BDO also attacked the FRC as weak, saying the regulator had “done much to undermine public confidence and trust” in the industry.

BC PHOTO

The top consulting firms and financial advisers for the education sector

A survey among buyers of consultancy services has identified the top management consulting and M&A advisory firms for the education sector. The list recognises large consultancies such as EY-Parthenon (the strategy consulting subsidiary of EY) KPMG, PwC, and boutiques with a focus on the education sector such as Cairneagle Associates and William Clarence Education.

Every year industry platform EducationInvestor organises the EducationInvestor Awards, a competition that is awarded to organisations and individuals that have made an outstanding contribution to the education sector in the past twelve months. Awards are also provided to firms and people that have done an outstanding job in promoting excellence and innovation within the industry.

Three categories look specifically at the performance of consulting firms in the sector. In the advisory and finance segment of proceedings, nominations have been handed out for the services of consultants to education institutions, and to private sector entities looking to invest in education. Meanwhile, nods were also handed out to five firms for the financial advisory category.

Top Consultancies

London headquartered Cairneagle Associates is an international strategy consultancy specialising in education, media and technology. The firm has previously been recognised with the 2015 and 2016 EducationInvestor Awards for Consultants to the Private Sector. Joining the consultancy is Carfax Projects. Founded in 2011, it provides technical and strategic support to investors, universities, governments, and inter-governmental organisations around the world.

The strategy subsidiary of Big Four firm EY also made the grade. EY-Parthenon is nominated alongside Big Four rival KPMG, and SAP consultancy Pivot. Pivot focuses primarily on digital transformation projects in the sector, while the final nominee for the category, William Clarence Education, recently announced a new partnership with educational guardianship organisation, AEGIS. The education consultancy will collaborate in order to offer new guidance for parents of international children studying in Britain.

Alongside second nominations for Cairneagle Associates, Carfax Projects and EY-Parthenon, CIL Management Consultants has also been nominated for the Consultants to the Private Sector Category. Last year, CIL was similarly noted for its achievements in the health sector, as the Health Investor Awards. The final consultancy to be nominated in the category is PwC. The firm recently announced its investment in the health technology business that has developed Perfect Ward, an online inspection tool aimed at improving quality in healthcare organisations and systems.

Financial Advisers

In the Financial Adviser category, Clearwater International, a financial advisory firm that provides services across multiple sectors, was marked out for its work. Founded in 2014, Clearwater hosts 200 employees in 15 international offices, and the business has completed over 1400 transactions, worth more than €66 billion. Alongside Clearwater, fellow nominee DC Advisory, a London-based corporate finance advisor with specific expertise in cross-border transactions, was also acknowledged.

Grant Thornton, the UK’s fifth largest auditor, received a nomination in the category as well, along with Houlihan Lokey/Quayle Munro. In January 2018, Houlihan Lokey, a global investment bank, successfully completed the acquisition of Quayle Munro, an independent advisory firm that provides corporate finance advisory services to companies underpinned by data & analytics, content, software, and services. Interestingly, QMPF, formerly known as Quayle Munro Project Finance is the final nominee in the category, having parted ways with Quayle Munro in 2014, thanks to a managerial buy-out.

Carillion PHOTO

Carillion’s demise spurs call for action against Big Four

MPs have said the stranglehold of the big four accountancy firms on the audit market needs to be broken.

Business and Work and Pensions Committees. say the competition regulator should look at breaking them up to prevent another situation like Carillion which collapsed months after accountants KPMG signed off its books.

But what impact might such a massive shake up have?

What have MPs proposed?

The committees want the government to refer the accountancy market to the competition regulator to investigate two possibilities. The first is breaking up KPMG, Deloitte, EY and PwC into smaller companies.

The second possibility is that the big four “detach” the audit part of the business which checks companies’ books, from consultancy part that offers advice.

The committees say this is needed because there is an inherent conflict of interest in having the two under one roof.

An auditing firm has an incentive to not highlight problems at a firm it is extracting juicy consultancy fees from. Non-audit work now makes up £4 in every £5 of fees for the big four.

Why have MPs proposed this?

The committees put forward the first, more radical, proposition because they say there is not enough competition in the audit market. The four firms sign off the accounts of 97 per cent of the UK’s 350 largest listed companies.

Firms over a certain size have to be audited and the largest of those companies have little choice but to employ one of the big four accountants to carry it out. No other accountancy firms have the manpower and other resources to be able to do the job.

This often results in “cozy” relationships like the one between Carillion and KPMG, which had audited the collapsed construction firm’s accounts for 19 years and failed to highlight serious problems.

What would happen if they are split up into smaller firms?

One possibility is that two or more smaller accountancy firms jointly audit large companies. France has this system and it has helped maintain a more competitive market than in the UK. The accountants produce a joint audit report and cross-check each others work, potentially making it more reliable. Both firms are then liable for the contents of the report.

Andrew Oury, partner at law and accounting firm Oury Clark says there “is some truth that ‘size matters’ but the cosy relationship needs disrupting”.

“Part of the solution could be an independent appointment from a wider pool of auditors for public interest entities – however those are defined.”

What would happen if audit and consultancy departments were split?

Accountancy firms would need to think of a new business model. Lower-level staff at the big four firms currently carry out a large volume of audit work. The job is inherently boring but the bargain is that new recruits slog their way through and eventually work their way up to more interesting and lucrative work. They also get their fees paid for professional exams.

If audit had to be hived off into a separate company the job would arguably be less attractive to talented graduates. However, it would at least mean that the employees carrying out audits are doing so because they want to rather than as a stepping stone to something else.

The most obvious positive is that auditors would clearly be working for shareholders of companies they audit, not the managers of those companies. This is, of course, the role that auditors are supposed to have been playing all along.

Is this a good idea?

It certainly has a lot of support. The Carillion disaster is merely a particularly high-profile example among many cases of auditors apparently failing in their duties. Apart from the two committees of MPs, the head of the accountancy watchdog, the Financial Reporting Council, also said recently it was time to break up the big four.

Sacha Romanovitch, the chief executive of the fifth-largest accountancy, Grant Thornton, has called for the CMA needs to investigate the sector. His firm stopped bidding to audit FTSE 350 companies recently, saying it was too expensive to do so.

Rugby PHOTO

Why do rugby players make such good business people?

Former New Zealand All-Black Sean Fitzpatrick and ex-England rugby coach Sir Clive Woodward explain why rugby and business go so well together.

George Gregan, Australia’s talismanic former scrum half, is one of the country’s most successful rugby union players. His international career spanned 13 years and saw him win 139 caps. Only two people have represented their countries more in the history of rugby – New Zealand’s Richie McCaw and Ireland’s Brian O’Driscoll.

Yet just five years into his international career and at the peak of his powers – the same year, in fact, that Australia won the Rugby World Cup – Gregan started his own business: GG’s Espresso shop, based in Sydney’s bustling business district.

To a football fan this might sound like an odd move, a bit like David Beckham drawing up a business plan for a greasy spoon café. But there lies, in a nutshell, one of the major differences between a game in which you throw the ball and one in which you kick it.

Rugby union went professional in 1995, and although the amount of money pumped into the sport has steadily increased, players’ wages are still small compared to that of football.

All Black Dan Carter will become rugby’s highest-paid player after the World Cup, yet even on his new wages it would take him more than 20 years to amass the annual salary of Cristiano Ronaldo. Ronaldo also enjoys bonuses and endorsements that take his earnings beyond £50 million a year – exactly 100 times more than the fourth highest-paid rugby player, Sam Burgess.

Rugby’s historical frugality is a major reason for its close and practical ties to business, says Sean Fitzpatrick, who recently spoke at Grant Thornton’s Inspiring Business event, part of a series dedicated to stimulating ideas among business audiences.

Sean Fitzpatrick

  • New Zealand All Black: 1986-1997
  • Captain: 51 times
  • World Cup winner: 1987
  • Front Row Group director: 2010

Sean is a World Cup-winning All Black with 92 caps to his name, having captained the side a one-time record of 51 times, a figure only recently bettered by Richie McCaw.

“Unlike footballers, most rugby players will have worked. We know that when we finish, we won’t have enough money to lie on the beach,” he explains during an interview with Strategies for growth ahead of his presentation. “A rugby player has to work with people and adapt to different situations; footballers don’t learn those skills because they don’t have to.”

It’s a fact drawn out in the experience of Sir Clive Woodward, the former England coach who steered the team to the 2003 Rugby World Cup title. During the early 1980s he combined his time working as an executive for the technology company Xerox with playing rugby 21 times for England.

Sir Clive Woodward

  • England coach: 1997-2004
  • Rugby World Cup winner: 2003
  • Southampton FC: 2005
  • British Olympic Association director: 2006-2012

“From a coaching point of view the business experience has been fantastic; as a player it effectively got in the way because it encroached on training time,” says Sir Clive, who delivered a presentation on world-class performance at Grant Thornton’s Inspiring Business event.

“When I became a coach all the lessons I learned in business became priceless. When I coached England it certainly helped that the players knew I had been in their shoes and had played for my country, but the biggest thing that helped me was 18 years in business,” he adds, referring not only to his days as a salesman and team leader with Xerox but also his stewardship of a small business that at one time employed nine people.

Coaching a team and heading up a business require the same leadership traits, according to Sir Clive. The key is not the team, but the dynamics between the individuals within it.

“Sometimes you can go over the top on ‘the team’. We lost the World Cup in 1999, and we had many of the same players and the same coach as we did in 2003. We were a lot better but fundamentally we were the same people.

“Anyone who plays rugby is likely to be pretty motivated. The secret to a great team is allowing those talented individuals to really flourish in a collaborative environment. You cater to every different personality because everyone is different.”

For Sean, culture is the most important ingredient in a winning formula. It’s no coincidence, he says, that the All Blacks have experienced sustained international success over the course of 100 years, despite the country having a population of just 4.6 million.

“They say that being captain of the All Blacks is more important than being the prime minister. It’s a huge responsibility and it takes three or four years to get used to it. It is the fear of failure but as you get older you learn to live with the fear. I loved being an All Black but the pressure was immense,” says Sean.

“The culture is the most important thing in a business, too – and it comes from the top. How you act towards people defines how they act towards each other. Make people want to work with you. Respect needs to happen up and down the organisation.”

The relationship between business and rugby is born of necessity, but the two are not uncomfortable bedfellows. Former players regularly make a smooth transition to employment or enterprise and thrive in a competitive environment that is different but the same.

George Gregan is just one example of this. His coffee shop now has 16 outlets. At the last count it had a turnover of £5 million and employs nearly 280 people.

“In sport you need drive and determination, and you have to work hard,” says Sir Clive. “When players enter the business world they tend to take those traits with them and they tend to be successful.

“It’s a way of getting over the disappointment of not playing any more. Gregan is a good example of someone who has channelled that and got the job done.”