Finance: Small firms seek crumbs from the giants' table

Superficially the future may look grim for accountancy firms outside the excitement of the Big Six merger story. But they still have successful niches to occupy - such as concentrating on owner-managed businesses. Roger Trapp reports on the firms who are adjusting their strategies to stay in contention.

You have to hand it to the second-tier accountancy firms. Though many would feel that the proposed mega-mergers were almost by definition going to put the biggest firms out of their reach, they insist on seeing this as an opportunity.

And, in a sense, they are right. The planned combinations of Coopers & Lybrand and Price Waterhouse - which the European Commission's competition authorities last week confirmed would be subjected to a full investigation - and KPMG and Ernst & Young, which is likely to meet the same fate in the coming weeks - will, if approved, create global accounting and consulting behemoths dedicated to serving the interests of the world's most powerful companies.

Though the firms insist that the interest in smaller organisations that has developed over recent years will remain, it is widely reckoned that this will eventually and inevitably fall victim to the drive to serve those huge and demanding clients. Moreover, interesting and worthwhile as working with small and medium-sized enterprises can be in the long term, it is widely acknowledged that such efforts are never going to produce the level of fees needed to keep a multinational entity employing 100,000 or so people running.

Enter, then, the likes of Pannell Kerr Forster, which last week produced its second set of annual figures. As John Wosner, the firm's outgoing national managing partner, made clear, the results do not show the same sort of heady growth as was reported last year.

But - with partners' average earnings slightly up, at pounds 112,000 a head, and profits steady at pounds 15.86m on marginally lower fees of pounds 72.7m - the firm has some justification in claiming that it is in good shape to gain from any fall-out.

Not that Mr Wosner, who retires from the post this week after four years at the helm, believes it is going to be easy to pick up extra work in the SME area. Clients take longer to switch firms than the people doing the work, because of the loyalty factor, he believes. But, in keeping with the firm's long-standing policy of looking out for good people in the Big Six, it has already started to pick up some at the level of partners and senior managers.

People who are not yet partners, and see their career paths limited by the creation of huge firms, as well as partners who do not want to be part of great monoliths, are showing a willingness to move, he claims.

The only problem with this, of course, is that every other second-tier firm is at it, too. Stoy Hayward, which also follows the growing trend for publishing financial results, has gone so far as to pull out of management consultancy, the better to concentrate on serving owner-managed businesses, while Horwath Clark Whitehill is adamant that it is not seeking a merger, and is confident of sustaining a viable presence on the back of its service to the smaller business community. It has recently set up a series of seminars with the aim of better gauging their needs.

PKF has not tempted fate by saying it is rabidly against a merger - in fact, Mr Wosner said that, while there were no merger plans at present, the firm was "talking to everybody always". And, of course, there is always the potential for a change of emphasis once Martin Goodchild, until now head of the London office, gets into position as national managing partner.

After all, if the merging Big Six firms end up having to "lose" a few audit clients in such areas as banking and other areas of finance, say, then a few people are likely to argue that the way to secure such accounts and service them properly is to get bigger.