Three of the Big Four — Deloitte, KPMG and PwC — are in a close race to buy BMR Advisors, India’s best-known boutique tax firm, or at least, separate parts of the firm. Serious negotiations are on since the past few weeks and the three major professional services firms have put in their offers, according to multiple sources connected with the deal.
Though conversations started for the entire firm initially, b of late two groups of partners have been negotiating separately with suitors to pursue independent deals. The tax team, comprising both direct and indirect tax partners, is being led by BMR co-founder Rajeev Dimri and Gokul Chaudhuri while Rohit Berry is holding talks for the M&A, corporate finance and risk advisory teams.
According to the last known conversations, the Rohit Berry group was leaning towards KPMG, while the tax team led was seriously considering the Deloitte offer.
A detailed questionnaire sent to BMR, KPMG, Deloitte and PwC did not elicit any response.
Insiders said the PWC offer was also on the table and still being discussed actively. BMR partners met on Saturday and Sunday to discuss the offers. Internally, a message has been delivered that by the end of this month, the transaction will be closed.
Sources say the BMR partners have been offered up to 30 per cent jump in their current salaries and a 100 per cent joining bonus amount over and above the increased salary as remuneration.
Interestingly, two of the BMR founding partners — Bobby Parikh and Mukesh Butani — are not part of any discussions. Sources say Parikh will most likely retire post the transaction and Butani will set up an independent law practice.
Initially, negotiations started with KPMG but then the two other firms also joined the fray. “BMR has a profitable business with a high-quality talent pool. This deal can be a win-win for both sides,” said one of the persons involved in the deal.
BMR currently has 25 partners with 15 in tax. Sources close to the transaction peg BMR revenues anywhere between Rs 220 and 240 crore.
“Tax is one of the most profitable practices for any Big Four. The only thing that hinders growth in tax is the shortage of quality talent. Also, in tax, many clients tend to move with their advisors. So this deal will be value accretive to any of the big firms,” said Sunil Chandiramani, ex-leader of EY’s advisory practice.
Two years back, KPMG had entered into negotiations to buy BMR but the talks failed due to valuation differences and role and reporting structure related issues.
BMR has been under pressure because of increasing dominance of the Big Four, loss of key talent, and rising costs. Increasingly, the firm was faced with a situation where the Big Four firms were picking teams regularly, while scale and a wider bouquet of services offered by full-service firms were becoming a challenge.
Margins were also dropping. So, the partners had to decide on the future course of business.
Recently, BMR legal, a sister firm run by Butani, recently lost its entire transaction and capital markets team to Shardul Amarchand Mangaldas. BMR was started in 2004 by ex-Arthur Andersen partners, Bobby Parikh, Mukesh Butani and Rajeev Dimri, who had joined from Ernst and Young (now EY).
Arthur Andersen had to wind up in 2001-02 in the wake of the Enron collapse. The India team under Parikh’s leadership had joined EY but in many other geographies, Andersen tax teams joined Deloitte.
The tax practice has been a lucrative business for the Big Four with a combined business north of Rs 3000 crore. Firms are lining up for BMR as its tax team is considered a high-quality practice.
EY is the market leader in tax followed by PwC hogging 35 per cent of the pie. KPMG tax practice was hit when industry stalwart Dinesh Kanabar left with his team to start Dhruva Advisors, and Deloitte has the smallest but fastest growing tax practice, so an acquisition like BMR tax team would lift its game exponentially.
“It will be interesting to see what happens. Two years back, there was a good deal when KPMG was speaking to BMR. They have lost talent in the last two years. So, now the two sets of teams sitting in different firms will fight for work,” said a tax expert.
Source: Economic Times