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KPMG executives are pushing for significant consolidation among its national partnerships, seeking to drastically reduce the Big Four firm’s “economic units” from over 100 to just 32 by next year.
This streamlining of operations and aims to enhance growth and represents a substantial acceleration of KPMG’s existing “clustering” strategy. This initiative, one of the largest overhauls of a Big Four network in recent years, comes amidst industry challenges including sluggish growth and increased regulatory scrutiny, Financial Times reports.
The drive for closer integration is motivated by the need for greater investment in technology, particularly within consulting, and to ensure consistent audit quality across the network. Smaller national partnerships are perceived as struggling to keep pace with these demands. KPMG’s UK and Swiss partnerships have already merged, and similar consolidations have occurred in the Middle East and Africa.
Unlike traditional multinational corporations, Big Four firms operate as networks of locally owned partnerships. However, this structure faces increasing pressure as consulting becomes a more crucial part of the business. KPMG is now mandating partial, and eventually full, profit-sharing among merged entities. Furthermore, a $300 million (c. £232m) revenue threshold has been set, indicating the minimum size required for a full member firm.
This effort follows a previous failed merger attempt in 2007. Despite achieving 5.4% revenue growth last year, KPMG is facing economic and geopolitical uncertainties affecting its clients. Other Big Four firms have also grappled with structural changes, with EY’s planned consulting spin-off collapsing and Deloitte successfully implementing regional consolidations.
KPMG has said that country-level legal entities will remain to comply with local audit regulations. However, the reduction in economic units aims to facilitate global business and investment.
