The current environment for mid-tier medium sized firms

Published december 2006

There has been a radical change in the operational environment and the competition faced by mid-tier medium sized firms. Size is not simply the key now, but rather focussed services providing added value.

Competition is at two levels: large local firms moving downmarket to the traditional SME base, and price/quality competition from local or specialist niche practices.

Competition for these medium sized firms is represented by the demise of the mid-tier, considerable merger activity, succession and retirement issues, and the Big Four getting bigger. The backdrop is a business environment of low inflation, greater international awareness, possible change of government and technological improvements and expertise being service and price driven.

Some mid-tier firms have found their profits squeezed through poor investment and a slow market and will be looking to merge within their peer group to maintain their national status, or face becoming small scale and vulnerable.

In the past 30 years only one firm in the Top 50 has maintained the same name. The conditions in the market change so rapidly that further consolidation and mergers are inevitable.

Several Group A firms are struggling with low profits, too many owners and the wrong mix of skills, and have not addressed how to fund the retirement of older partners whilst maintaining profitability and creating an attractive proposition for potential incoming equity partners.

Non-national large local firms will tend to become even more dominant in their geographical domains, and will continue to acquire and build specialist niche practices providing the relevant skills to continue to compete favourably with the mid tier and for some of the smaller work currently covered by the Big Four.

Overall the picture will be quite bleak for some of the mid-tier as they are squeezed by both Big Four and the larger local firms who continue to progress with the acquisition of smaller focussed firms. A wake up call is required.