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Big 4 Firms Encroach on Middle Market Turf

Jessica DiNapoli 05.13.2011 | Long Island Business News

Executive committee partner Mark Bosswick gave Long Island Business News some Berdon approaches for distinguishing ourselves in the marketplace.

A sluggish economic recovery is pushing Big Four accounting firms further into the middle market domain, traditionally the territory of their regional counterparts, accountants say. The change in the competitive landscape, which has happened in prior economic contractions and recoveries, is forcing the middle market accounting sector to get creative to retain clients and to entice new ones to sign on.  One way middle market firms have sought to distinguish themselves is by introducing new niches and reinvigorating older ones. 

George Victor, the director of quality control at Giambalvo, Giammarese & Stalzer, an accounting firm in Great River, said the Sarbanes-Oxley Act of 2002 kept Big Four firms busy for about four years.  Once the work to comply with that act, which put in place new and enhanced standards for public companies, became routine, the recession hit, drying up the initial public offerings and mergers and acquisitions markets, which were the traditional domains of the Big Four.  That left the major accounting firms to hunt for business prospects in the middle market. 

“The competition is even more intense,” Victor said, explaining that the middle market firms and Big Four are now competing for the same companies. 

Victor brought an expertise in international financial reporting standards when he joined the firm about a year and a half ago and is now training fellow CPAs to help develop it as a niche.  The financial reporting system is used abroad, though the Securities and Exchange Commission has recommended that it be adopted in the United States, Victor said. 

The skills came in handy – and saved Giambalvo, Giammarese & Stalzer from losing a client to the Big Four – when a long-standing client was acquired by a Swiss company.  The acquiring firm wanted its acquisition target to report under the international standards, and would’ve had the Long Island affiliate of the Big Four it worked with in Switzerland do the work. But, Victor’s specialized expertise kept the job in house. 

“We were able to keep the client,” Victor said. 

The Melville office of Big Four firm PricewaterhouseCoopers has seen growth in its private company services practice, an area rife with middle market firms, and beefed up staffing there by 10 percent over the last nine months, said office managing partner Paul Salerno. 

“Some of the Big Four got out,” Salerno said of the middle market, which, for PricewaterhouseCoopers, includes firms with $75 million and more in annual revenue. “And they may be getting back into it.” 

“It’s clearly a trend, a cyclical trend,” said Lou Grassi, CEO at Jericho-based Grassi & Co. of the Big Four’s encroachment into the middle market. 

To compete with firms like PricewaterhouseCooopers, Berdon is revamping marketing plans for its real estate and law firm niches, said Mark Bosswick, a partner at Berdon, which has offices in Jericho and Manhattan. 

“They’re our strongest and longest-standing niches,” Bosswick said, adding that there are several dozen Berdon accountants in each practice area.

In the face of pressure from the Big Four, Berdon has introduced e-casts – a question-andanswer style webcast – and forums on issues in the firm’s specialty areas, Bosswick said. 

Webcast attendees “get to meet the people who actually get to do it,” Bosswick said of why those marketing tools work for Berdon. 

Niches are a competitive marketing tool, but they have to be backed by a legion of accountants or numerous clients in that particular field to really work, said Art Kuesel, a Chicago-based consultant for accounting firms who works nationally. 

“It could be creating more of an illusion or mirage,” Kuesel said, “because they’re basically just repurposing current resources.  You need to have a certain number of clients you serve in that industry, staff and technical capabilities in the industry.” 

Holtz Rubenstein Reminick is also bolstering its niches.  It’s China practice is blossoming, but the firm is also keeping an eye on the home front by adding staff to its biotechnology, financial services, distribution and real estate practice groups, said Andrew Schneider, a partner at the firm. 

“We’re going to have people focus on those areas, so that we can have a similar type of expertise (as the Big Four) over time,” Schneider said.  “We’ll never have the same number of people, but we might have one or two experts in an area, while they’ll have 10.”