After months of speculation, KPMG LLP officially announced on Friday that it has entered into a merger agreement with Roseland, New Jersey-based professional services firm Rothstein Kass, a move that would vault the Big Four firm into the No. 1 spot in the US hedge fund auditor market.
The transaction is expected to close in the coming weeks; terms of the agreement were not disclosed. According to the agreement, most of the principals and employees of Rothstein Kass will join KPMG.
Founded in 1959, Rothstein Kass employs more than 1,000 principals and professionals in 10 offices across the United States. The midtier accounting firm specializes in audit, tax, and advisory services to hedge fund, private equity, and venture capital clients. Rothstein Kass was ranked as the nation’s 19th-largest firm by INSIDE Public Accounting in 2013; KPMG was ranked fourth.
KPMG officials said the deal will boost the Big Four firm’s presence in the alternative investments industry and capital markets, including private equity, real estate, infrastructure, and hedge funds.
According to a recent report by research firm Audit Analytics, Rothstein Kass ranked third in a list of the top 10 audit firms cited most frequently by hedge funds in their Form ADVs. As of May 13, 2014, Rothstein Kass had 2,063 hedge funds, only behind Big Four firms EY at 3,583 and PwC at 3,483.
KPMG ranked fifth on the list with 1,616 hedge funds, but assuming it retains all of Rothstein Kass’ hedge fund clients, KPMG would leapfrog EY and PwC as the total engagement leader in the hedge fund auditor market, Audit Analytics noted.
“This agreement will … enable us to provide the highest level of service to hedge funds of every size and at every stage of growth – from emerging managers to the most seasoned funds,” KPMG Deputy Chairman and COO P. Scott Ozanus said in a statement on Friday.
KPMG Global Chairman John Veihmeyer added that the merger “will provide the services and capabilities our clients need as they face new regulations, increasing market complexity, and global convergence that are affecting hedge funds and the broader alternative investments industries around the world.”
“This also represents a significant investment in our audit and tax businesses and demonstrates our continued commitment to driving growth in our core services,” he also noted in a statement.
Rothstein Kass had $202.1 million in revenue last year, compared with KPMG's $6.1 billion in US revenue, according to the Wall Street Journal. CEO Steven Kass said the firm is excited at the expanded global reach the merger will present to its clients and its employees, as KPMG has more than 8,600 partners in 155 countries worldwide.
“We are looking forward to a seamless transition that will provide business continuity for both our clients and professionals, and are committed to continuing to provide the highest level of service for which KPMG and Rothstein Kass are known,” he said in a statement.