An historical perspective on mergers and acquisitions by major US accounting firms

Headnote

Abstract

This study presents an historical perspective on mergers and acquisitions by major US accounting firms throughout the twentieth century with special emphasis placed on such activity during the last fifty years of this period. The focus of this perspective is: (1) the importance of mergers and acquisitions in the formation and growth of major accounting firms; (2) the relationship between the internationalisation of trade and the internationalisation of major accounting firms; and (3) the ways in which accounting firms have used mergers as a response to an increasingly competitive environment.

Keywords: accounting history; accounting firms; growth of firms; internationalisation; mergers and acquisitions.

Introduction

The growth of individual firms to great size through merger with rivals is an outstanding development of modern economic history ... . There are no large American companies that have not grown somewhat by merger ... (George J. Stigler, 1950, p.23).

If it is bigness that it takes to have any say in the accounting profession, why then we will concentrate on first things first. We'll get big (Leonard Spacek, senior partner, Arthur Andersen, 1989, p.55).

Growth, diversification and influence by a corporation or accounting firm can be achieved in two major ways (Goldberg, 1973, p.19). One method, as Nobel Economist George Stigler writes, is through mergers while the other is through internal growth and diversification. For the first half of the twentieth century, growth for many accounting firms (for example, Arthur Andersen and Arthur Young) was largely internal while at other firms, such as Haskins & Sells, a large portion of their growth resulted through mergers. However, in the latter half of the twentieth century, the value of growth through mergers became apparent to the major firms. By the 1980s, all leading US accounting firms were involved in major merger discussions. With the resulting mergers, as the twentieth century ended, the number of major US accounting firms had been reduced to five (and then four with the demise of Arthur Andersen). But, in reality, the four firms had evolved beyond the US to become what Michael Porter (1990, p.251) describes in The Competitive Advantage of Nations as global firms, that is, "[firms] that service multinational clients anywhere, differentiating itself from the local competition. Worldwide brand reputations can be...