You seldom hear about a consulting operation being acquired out of bankruptcy. But in what is surely a sign of the times, we've just seen the close of such a deal: the purchase of the majority of BearingPoint's North American Commercial Services Practice by PricewaterhouseCoopers LLP, a transaction valued at $44 million. It was PwC's third acquisition this year.
"We aim to be the No. 1 consulting firm on the planet," says Joe Duffy, strategy leader for the firm's U.S. advisory practice. "And we're using the economic downturn to our advantage."
As we pointed out in a Monday post,
acquisitions out of bankruptcy by strategic acquirers are up sharply, with 79 such sales already closed or approved this year, compared with 102 for all of last year. But it's one thing to buy a bed retailer or a rental car operation in a 363 sale and quite another to get a brainpower business that way. Luckily, Duffy says, "the market could differentiate between the brand and the teams." He says one Fortune 100 client renewed an $11 million contract last month, with BearingPoint still in bankruptcy -- but with PwC, the stalking-horse bidder for the business, very much on the scene.
Here too, Duffy says, the tough economy worked in PwC's favor by discouraging the exodus of talent that might be expected when a consulting firm seeks protection.
PwC had never bought out of bankruptcy before, Duffy says, but it knew the ropes from advising clients on such deals.
The former consulting arm of KPMG, IT-focused BearingPoint was spun out in 2000 and went on to acquire and borrow heavily, finding itself
hit hard when the economy turned. It filed for Chapter 11 protection in February. Its biggest business, a public services unit, went to Deloitte LLP in April for $350 million. PwC got its Japanese business for $45 million the
same month.
The North American Commercial Services deal brings PwC 800 professionals and selected contracts. It will also acquire global delivery centers in Shanghai and Bangalore. Together with the Japanese purchase, it will add about $500 million in incremental revenue, Duffy says.
That brings PwC's broad span of consulting and advisory businesses to about $7 billion in revenues, about the size of the consulting business PwC sold to IBM Corp. (NYSE:IBM) in 2002.
Duffy doesn't necessarily expect more deals out of bankruptcy, calling this an "extreme case." But he does see plenty of opportunity to keep growing by acquisition. "Targets are more likely to talk and deal in the current climate," he says. -
Kenneth Klee
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