이 기사는 2020년 02월 13일 08:00 thebell 에 표출된 기사입니다.

Mid-sized accounting firm are seeking to expand their M&A advisory business as PE-backed transactions are continuously on the rise in South Korea, though whether they would be capable of competing with the Big Four accounting firms remains under question.

The number of PE-backed transactions in the country increased to 106 in 2019 from 73 in 2018 and 86 in 2017, constituting nearly 50 percent of total M&A deals, according to the bell’s league tables. In particular, transactions where PE firms were on the buy side accounted for more than 70 percent of total PE-backed M&A activity.

This has led to the growth of the M&A advisory market serving private equity firms, which has prompted smaller-sized accounting firms to jostle for the market share. As part of an effort to expand their M&A advisory business targeting the private equity industry, many of the mid-sized accounting firms have separated their advisory unit and are trying to offer services focused on their private equity clients.

For example, Sunil Accounting Firm, which came fifth in the bell’s M&A accounting advisory league table in 2019, advised private equity firms on five deals among six deals it worked on during the year. The firm, with its strong network in the country's southeastern Yeongnam region, intends to expand its M&A advisory business, focusing on the shipbuilding and marine engineering sectors.

BDO Sungto-Ehyun, which was fifth behind the Big Four in the 2018 league table, has separated the financial advisory unit to elevate it to an independent division in an effort to better serve its private equity clients. Notable deals the firm worked on last year include Bayside PE’s acquisition of JRW Inc. which owns Mexican restaurant chain On The Border. Going forward, BDO is expected to ramp up its advisory activity targeting private equity firms in the food and beverage as well as cosmetic sectors.

Changes in a revenue structure also drive smaller-sized accounting firms to put more focus on the financial advisory business. The share of revenue from the advisory business has continued to increase in the accounting industry during recent years.

Moreover, the mandatory external auditor designation system, which came into effect in the country this year, requires auditors of listed companies to meet certain qualifications, raising uncertainty over revenue prospects. Under this circumstance, an attempt by mid-sized accounting firms to expand their advisory business can be seen as part of the efforts to diversify their revenue sources, industry watchers said.

Currently, however, the Big Four – Deloitte Anjin, Samil PricewaterhouseCoopers, KPMG Samjong and Ernst & Young Hanyoung – dominate the M&A advisory market. They advised more than 96 percent of the country’s total PE-backed transactions in 2019.

“Smaller-sized accounting firms need to take the market share from the Big Four in order to increase their revenue from the advisory business,” said an industry insider. “They should build customized strategies and offer specialized services if they don’t want to find themselves in a cut-throat competition.”

(By reporter Choi lk-hwan)