Merchant banks are now unnecessary for acquisitions and flotations of up to pounds 1bn, leading accountancy firms claimed yesterday, as UK audit firms took note of the American move.
While KPMG Baymark remains independent from the accountancy firm, it will license its name and use KPMG's services for mergers and acquisitions.
One head of corporate finance at a rival UK accountancy firm commented yesterday on the BayMark launch: "We were all pretty amazed by that and trying to work out what it means."
Neil Lerner, head of corporate finance at KPMG in the UK, insisted that the BayMark launch was purely an American affair, and that the UK firm had no plans to underwrite share issues. "That doesn't mean that we couldn't get a club [of investors] together to purchase capital - but we have no plans to do so at the moment."
The corporate finance divisions of the large accountancy firms captured the UK management buyout market in the 1980s when the merchant banks were preoccupied with mega-deals.
Formerly worried that the merchant banks would resent their auditors competing with them, the accountants are now competing on M&A work head- on, and going for larger deals.
Mr Lerner said medium- sized merhcant banks were under increasing pressure from accountancy firms in corporate finance. "We are now seeing a polarisation between the bulge-bracket banks, like SBC Warburg, and the smaller houses giving pure advice. What will happen to those in the middle is not so clear."
Last week KPMG advised on and sponsored the largest public deal by an accountancy firm in the UK, when the engineering group Rubicon acquired Calder for pounds 94m and raised pounds 15m extra capital, bringing the enlarged group's market capitalisation to more than pounds 150m.