Deloitte and PwC Pick Up BearingPoint Pieces, Plan Return to Pre-Sarbox Business Models

BearingPoint’s obituary has been half-written for some time now, lacking only dates and potential buyers to fill in the blanks. Today, just a month after the company filed for bankruptcy, two global accounting firms, Deloitte and PricewaterhouseCoopers, stepped up to acquire some of what is left. The result redraws industry lines into something that looks oddly like turn-of-the-century consulting, pre-Enron and Sarbanes Oxley. Dana Stiffler comments.

Remember that pesky Sarbanes-Oxley Act? Today’s announcements – in the world of consulting and IT services – almost make it seem like it never happened. Deloitte announced its intent to acquire BearingPoint’s relatively healthy North American public sector business for $350M in cash. Pricewaterhouse Coopers’ U.S. firm will acquire select pieces of BearingPoint’s North American commercial portfolio, while PwC Japan will acquire all of BearingPoint’s Japanese consulting practice.

A quick SarbOx refresher: the Act prohibits accounting firms from doing consulting work for independent audit clients. Even prior to SarbOx, this ethical conundrum and different firms’ takes on what it meant for future revenue opportunities saw four of the big five accounting firms divest themselves of their consulting businesses. Only Deloitte remained integrated, calling off its consulting spin-off at the last minute. This decision turned out to be a hugely profitable one, which hasn’t escaped the notice of the three non-integrated accounting firms, Ernst & Young, KPMG, and PwC. Since 2003, only Deloitte has been able to provide high-end financial and tax advisory services as well as operational consulting and systems implementation. This has compelled KPMG and PwC to gradually rebuild the consulting practices they had jettisoned years ago, which brings us to announcements like the PwC-BearingPoint one today.

Detailed terms of the PwC-BearingPoint acquisitions weren’t available, though the industry focus is fairly tight: energy and utilities, insurance, and life sciences. PwC is essentially cherry picking contracts -- the offer on the table is just $25M for the selected contracts, while BearingPoint’s North American commercial services business generates approximately $400M annually. PwC leadership couldn’t say how many people would be part of the proposed acquisition but said the number is in the hundreds, not thousands, and includes BearingPoint’s offshore delivery capability in India.

The small size of the potential PwC-BearingPoint acquisition notwithstanding, it’s becoming clear that the accounting firms, Deloitte and PwC in particular, are gearing up to compete head to head with their offspring at IBM, Accenture, and Capgemini, and with India, Inc. as well. The accountants have not yet crossed the Rubicon into re-embracing IT and business process outsourcing wholesale, but it looks as though things are headed in that direction.

BearingPoint’s obituary has been half-written for some time now, lacking only dates and potential buyers to fill in the blanks. Today, just a month after the company filed for bankruptcy, two global accounting firms, Deloitte and PricewaterhouseCoopers, stepped up to acquire some of what is left. The result redraws industry lines into something that looks oddly like turn-of-the-century consulting, pre-Enron and Sarbanes Oxley. Dana Stiffler comments.

Remember that pesky Sarbanes-Oxley Act? Today’s announcements – in the world of consulting and IT services – almost make it seem like it never happened. Deloitte announced its intent to acquire BearingPoint’s relatively healthy North American public sector business for $350M in cash. Pricewaterhouse Coopers’ U.S. firm will acquire select pieces of BearingPoint’s North American commercial portfolio, while PwC Japan will acquire all of BearingPoint’s Japanese consulting practice.

A quick SarbOx refresher: the Act prohibits accounting firms from doing consulting work for independent audit clients. Even prior to SarbOx, this ethical conundrum and different firms’ takes on what it meant for future revenue opportunities saw four of the big five accounting firms divest themselves of their consulting businesses. Only Deloitte remained integrated, calling off its consulting spin-off at the last minute. This decision turned out to be a hugely profitable one, which hasn’t escaped the notice of the three non-integrated accounting firms, Ernst & Young, KPMG, and PwC. Since 2003, only Deloitte has been able to provide high-end financial and tax advisory services as well as operational consulting and systems implementation. This has compelled KPMG and PwC to gradually rebuild the consulting practices they had jettisoned years ago, which brings us to announcements like the PwC-BearingPoint one today.

Detailed terms of the PwC-BearingPoint acquisitions weren’t available, though the industry focus is fairly tight: energy and utilities, insurance, and life sciences. PwC is essentially cherry picking contracts -- the offer on the table is just $25M for the selected contracts, while BearingPoint’s North American commercial services business generates approximately $400M annually. PwC leadership couldn’t say how many people would be part of the proposed acquisition but said the number is in the hundreds, not thousands, and includes BearingPoint’s offshore delivery capability in India.

The small size of the potential PwC-BearingPoint acquisition notwithstanding, it’s becoming clear that the accounting firms, Deloitte and PwC in particular, are gearing up to compete head to head with their offspring at IBM, Accenture, and Capgemini, and with India, Inc. as well. The accountants have not yet crossed the Rubicon into re-embracing IT and business process outsourcing wholesale, but it looks as though things are headed in that direction.

Comments

[Chas Mullins]

Having left PWC's Outsouricng Advisory Services practice one year ago, this news comes with both high hopes and expected failure.

PWC's current model doesn't work for a global solution based discussion with a MNC. Since their OAS practice was one of a regional basis and not a national practice, discussions with clients were limited to what the area office could deliver to them.

PWC didn't take into account a global solution, this is due to their country model of US, India, Japan.... etc. Since each country manages and tracks their own FTE's, each country doesn't have the incentive's to work together for the good of the client. With that in mind, their newly acquired offshore delivery capability in India will benefit the India practice as they will have their own people billable at the site(s). This will not directly benefit the bottom line for the US practice as their FTE's wont' be able to be billable at those India locations.

Overall, I found PWC to a great company with superior people, it's their financial model that needs to global and not US based regions. After all, they are an LLP company, that stands for "lot's of little practices". Based on their current operations, I hope the best for them and expect the worst, as I don't see them integrating into a global firm in the near future.

[Dana Stiffler]

Good point Chas -- standard global delivery of services is problematic for the Big Four with their country-based partnerships. It's probably *the* main hurdle in competing with IBM, ACN, et. al. I'm still not clear on why they're wanting to compete in the first place -- none of the firms have articulated a compelling benefit for re-engaging along these lines.

[Bob Whaley]

I wonder if your point doesn't square with the approach PWC took, i.e. buy individual contracts. They probably are mapping clients to their regions and slotting them in. If so, wouldn't pose quite as much of an integration challenge from the client side, though surely scope of work for these clients may be multinational. Do you know whether Bearingpoint's commercial business organized on a more global basis, or was it too more regionally organized?