Deloitte expands into commercial property with Drivers Jonas deal

Published 22nd Jan 2010

Deloitte, Britain’s second-biggest professional services group, is to seize a foothold in the £2 billion commercial property consulting market by acquiring one of Britain’s oldest real estate firms. The “big four” accountant will merge its real estate practice with Drivers Jonas, the UK’s eighth-biggest commercial property adviser, it said yesterday.

No money will change hands. Instead, Drivers Jonas’s partners will be absorbed into Deloitte’s partnership, which could result in their earnings soaring. Partners in Deloitte made an average of £883,000 last year.

The new unit will have revenue of £110 million and 700 staff, but John Connolly, Deloitte’s chief executive, who forged the deal, said that fee income is expected to more than double to £250 million within three years.

Deloitte is the second-biggest of the big four in the UK, after PricewaterhouseCoopers, with 12,000 staff, 670 partners and revenues of almost £2 billion, compared with £2.25 billion at PwC. It audits 21 of the FTSE 100 and advises other big companies, banks and governments on matters such as tax and corporate finance.

The firm has trebled in size since Mr Connolly took over in 1999, leapfrogging rivals KPMG and Ernst & Young to challenge PwC as the market leader. Controversially, it decided not to sell its consulting business at the start of the decade even as its rivals shed theirs because of concerns over conflicts and strategic clashes. In 2002, it took on what remained of Arthur Andersen after it collapsed in the wake of the Enron scandal.

Mr Connolly, 59, ends his term as chief executive next year. The Drivers Jonas tie-up, which is expected to complete in March, is the second merger he has negotiated this month after Deloitte acquired ReportSource, an information provider.

Drivers Jonas made a profit of £20 million for the year ended May 31 on turnover of £96 million, according to published accounts. It employs about 650 staff, mostly in the UK, with some in Paris and Frankfurt. Before the downturn, some Drivers Jonas’s partners received close to £1 million.

The Drivers Jonas deal is the latest in a series of ambitious moves by the “big four” accounting firms as they seek to expand beyond traditional practices, such as audit and tax, and into lucrative new areas. It puts the accountant in direct competition with the dominant listed companies such as CBRE and Jones Lang.

The new group will be known as Drivers Jonas Deloitte and will be run by Nick Shepherd, Drivers Jonas’s managing partner, who will report to Mr Connolly.

Deloitte already had a small real estate advisory group with three partners and around 40 staff. However, Mr Connolly, after reviewing Deloitte’s strategic options, identified commercial property as an untapped opportunity for accounting firms.

Advisers expect a wave of defaults on billions of pounds of loans against commercial property will need to be refinanced in the next few years. The Government is also expected to begin a multi-billion pound asset sell-off to raise money for the Revenue, presenting more opportunities for substantial fees for property consultants.

Mr Connolly said that Deloitte identified Drivers Jonas as the most attractive target in the commercial property market because of its size, profitability and reputation.

Source: ' Times '

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