Mergers of Maltese audit firms : a study

Abstract

Purpose : This study intends to analyse the merger process adopted by audit firms. Moreover, the motivations for M&As in the audit market are examined. In recent years, several M&As occurred in the audit market. These deals are expected to continue. Design : The objectives of this study are reached by means of eight one-to-one semi-structured interviews with people who managed the merger. The interviewees are all partners from mid-tier or Big Four audit firms. Findings : This study finds that a number of the mergers start by partners from the two firms knowing each other. Discussions begin between the two parties, and a decision is reached once the goals of the merger are aligned. Hence, local audit firm mergers are a result of opportunity and active searching of the market. All mergers examined reached their objectives successfully. Weaknesses and errors are identified, so companies with future merger plans do not repeat them. Though all the mergers are a success, calculating the level of accomplishment is more challenging. The audit market is consolidated and smaller and mid-tier firms find barriers to compete against the Big Four. Conclusions : Mergers between the Big Four are not foreseen. However, it is expected that mergers between small and mid-tier firms result in the establishment of a firm which will be able to compete with the current Big Four firms. Moreover, M&As between audit firms and specialised companies are predicted to continue. The essential elements for successful mergers were found to be integration and people. Value : Audit firm M&As are expected to continue in the foreseeable future. This study will be of use to audit firms planning to merge with other audit practices or specialised entities. It sheds light on the reasons why audit firms are restructuring themselves via M&As. In addition, the most common challenges encountered during the merger process are identified.