As the market downturn continues, major accounting firms in South Korea are struggling with excess staff due to a significant drop in M&A and consulting work.
The rapid slowdown, driven by high interest rates and economic uncertainty, has left many employees underutilized, especially those hired during the real estate boom. Firms are now focusing on smaller deals and enhancing employee skills to cope with the decreased workload.
Given this situation, many accounting firms are increasingly expressing their difficulties.
“We’re not the only ones. All major accounting firms in S. Korea are likely in a similar situation. Starting in 2020, with the market flooded with money, there was a surge in M&A advisory and consulting work, leading us to hire extensively. Back then, even with rising labor costs, it wasn’t a problem because we were making enough,” said an accounting firm representative.
He then explained that the tables had turned. He added, ‘As you know, since last year, the market has significantly slowed down due to high interest rates and increased uncertainty, and the work has dried up. Now, the key issue is how to manage employees who don’t have enough work,’ said a representative from an accounting firm.”
According to the accounting industry, deals and consulting are the most problematic areas that accounting companies mourn about. As the economy has declined, companies have tightened their budgets, leading to a drop in both the number and size of M&A deals, as well as a decrease in demand for consulting.
In the first quarter of this year, there were no billion-dollar deals in the M&A market, and the transaction volume shrank significantly. Over the past year, the financial advisory market saw transaction amounts plummet by 84.3% due to the high-interest-rate environment.
A major issue was the expansion of partner and junior staff during the real estate boom, which has now backfired.
A representative from a large accounting firm said, “As the real estate market cooled rapidly, our real estate teams, which we painstakingly built, are now left with little tasks. We can’t let these expensive hires sit idle, so we’re now taking on smaller deals that we wouldn’t have considered before.”
Matter of fact, S. Korean accounting giants like Samil PwC and Samjong KPMG have focused on smaller deals this year. In the first quarter, while other advisory firms handled one or two cases, Samil PwC and Samjong KPMG handled a total of 42 cases, capturing a 68.82% market share. In contrast, global investment banks and advisory firms like Credit Suisse and Morgan Stanley managed only one or two financial advisory transactions.
The influx of non-accountant personnel specializing in real estate has also become sort of a problem. In the past, large accounting firms were focusing on strengthening their non-audit divisions by aggressively expanding their real estate-related teams.
However, now with real estate transactions nearly vanishing, these hires have become burdensome. Many of them lack accounting certifications, making it difficult to assign them to audits or due diligence tasks.
Another representative from a major accounting firm said, “When the market was good, it was common for 50 out of every 100 new hires to leave for other opportunities, showing how high the turnover rate was.”
However, he said things had changed these days a lot. He added “We’re facing the opposite problem with employees not leaving, which is causing concern. There’s increased pressure on partners to deliver results, and there are also moves to downsize underperforming divisions.”
Employees are staying put mainly due to the economic downturn. The burst of the venture bubble has reduced the number of accountants moving to startups, and large companies have also cut back on hiring. With nowhere to go, they’re holding on to their current jobs, even if reluctantly.
Given this situation, some firms are focusing on skill development for their employees. The AI trend has also hit the accounting industry, leading to an increase in related training. Since there’s not much work, the idea is to at least improve skills during this period. Major accounting firms have indeed ramped up training for new accountants compared to before.
