Evolution of Giants: The Fascinating Mergers Behind the Big Four Accounting Firms

Ever wondered what KPMG stands for? It's actually quite interesting – KPMG stands for Klynveld Peat Marwick Goerdeler, named after the last names of its four founders.

These founders merged their respective companies to build one of the largest accounting and professional services firms in the world.

And get this—back in the 1900s, when all this happened, mergers weren't a thing like they are now. No fancy investment bankers to play matchmaker for businesses, it was just pure entrepreneurial spirit!

Infact, picture this in 1986 – two founders of KPMG, William Barclay Peat from the UK and Roger Mitchell from the US, unknowingly boarded the same ship sailing from Europe to America. Fate had its own plans. During the week-long sea adventure, they clicked like old pals. By the time the ship docked, not only had they formed a strong bond but also hatched a brilliant plan to merge their companies. The result? The birth of Peat Marwick International (PMI), which later on merged with Klynveld Main Goerdeler (KMG) to form KPMG.

Now, let's dive into a bit of history. In 1917, Piet Klynveld (the K in KPMG) started a small accounting firm in Amsterdam. Over the years, Klynveld Kraayenhof & Company (KKC) emerged, eventually teaming up with DTG and McLintock Main Lafrentz to form Klynveld Main Goerdeler (KMG) in 1979.

Fast forward to 1986, PMI merged with KMG. On January 1, 1987, the joint companies adopted the name Klynveld Peat Marwick Goerdeler – marking the largest merger in accounting history. KPMG International was born!

And guess what? KPMG isn't the only one in the game. The whole Big 4 accounting crew, including Ernst & Young, Deloitte, and PwC, have a similar history of mergers.

Infact, back in the '90s, there were even "Big Eight" accounting firms like 

• Arthur Andersen LLP

• Arthur Young

• Coopers & Lybrand

• Deloitte Haskins and Sells

• Ernst & Whinney

• Peat Marwick Mitchell

• Price Waterhouse

• Touche Ross & Co.

Now, here's where it gets interesting. Over time, things changed and these Big Eight became Big Four! 

In 1989, Ernst & Whinney joined forces with Arthur Young, becoming Ernst & Young, or EY. 

Deloitte Haskins and Sells merged with Touche Ross & Co., transforming into Deloitte & Touche, or just Deloitte. 

In 1998, Price Waterhouse and Coopers & Lybrand merged to create PwC.

But why all these mergers, you ask? Let's break it down:

Expand service portfolio - when firm with accounting firm expertise mergers with another firm with taxation expertise and then again with a firm with company secretarial expertise, it opens up doors to cross sell. Furthermore, adds higher qualification met to bid for large projects based on combined credential.

Access to different markets - When 2 companies having identical service lines located in 2 different geographies merge, they unleash the power to cater to larger clients no matter where they are.

Investment in growth engines - Mergers allow combined company to invest their combined pool of resources into great corporate office, technology transformation, people & culture, content marketing, business development team, learning & development which is perhaps impossible for a small firm to spend on.

Unlocking value - Ability to raise growth capital based on combined balance sheet is higher. Valuation that the combined entity post merger can demand can be higher than valuation the individual entities can seek pre merger . Exit through acquisitions is also a prominent route where the founders don’t have next generation in same line of business - an opportunity for promoters to encash value through exit.

Attracts talent: Bigger firms attract talent by offering exciting work, learning opportunities, and competitive salaries. 

So, now you know that all legendary accounting firms rose to success through mergers and acquisitions - that unlocked value, enabled investment in growth engines and attracted a top-tier team. 💼✨ #AccountingEvolution #BigFourJourney