Is A Big 4 Firm Buying BearingPoint?
Today’s Washington Post:
Consulting firm BearingPointappears to be near its end.
The company, which filed for bankruptcy protection last month, said late last night that it had reached an agreement with several parties — including PricewaterhouseCoopers and Deloitte — to sell “substantially all of its businesses.”
“We have concluded that a sale of the company’s business units maximizes value and provides the greatest stability for all interested parties. We are pleased that several parties have expressed interest in purchasing the majority of the company,” BearingPoint chief executive Ed Harbach said in a statement.Deloitte is buying a “significant portion” of BearingPoint’s public services business, its largest and most successful unit, for $350 million. Pricewaterhouse will buy a “substantial portion” of the firm’s North American commercial services unit, including a segment focused on financial services, for $25 million. It was not clear what would happen with the remaining portions.
Update on Strategic Alternatives
As previously reported, BearingPoint retained financial advisors to explore ways to improve its capital structure and liquidity in light of its evolving cash position. These alternatives initially included a merger or sale of the Company as a whole, a sale of all or substantially all of the assets of the Company or the sale by the Company of any of its six principal business units….Because the Company has not yet reached a strategic agreement regarding a merger or sale, its Board of Directors has also directed the Company’s financial advisors to begin discussions with debt holders to explore the feasibility of restructuring its debt or exchanging existing convertible debt for equity. The Company has begun to make contact with debt holders in the past week. At this time, BearingPoint can provide no information regarding the outcome of these discussions or on the timing of when they will be completed.
Forward-Looking Guidance Withdrawn
The Company announced it has withdrawn all remaining forward-looking guidance for fiscal year 2008. Given the recent dramatic changes in global financial and credit markets and the continuing pressures that these events have placed on the Company’s share price, the Company is no longer confident that it can assess the near-term implications that these developments will have.
“…we are uncomfortable trying to predict how client demand and the perceptions of entering into long-term engagements with BearingPoint will affect our financial position for the remainder of the year. We’ve factored a number of considerations into our decision, including: the speed at which our clients are making decisions based on their own outlook; the uncertainties that we face while we resolve issues such as our own noncompliance with New York Stock Exchange continuing listing standards; and our view that we increasingly believe a strategic transaction or restructuring of our indebtedness will be necessary for us to continue to fund our 2009 operations and debt obligations.”
Let’s look at the disadvantages to PwC (or any other Big 4 audit firm for that matter) of purchasing BearingPoint and the reasons why regulators such as the PCAOB and their boss, the SEC, should stop this transaction before it goes too far:
1) PwC has too much on its plate already to be be making big moves to recreate a systems integration firm. Not only is the ERP business in a downtrend as BearingPoint’s own and their fellow Big 4 firm Deloitte’s results show, PwC has already shown that their appetite for this kind of business is fickle and uneven. PwC has no patience or competence for controlling a real consulting company (not an audit firm of “separate and distinct legal entities” )with 36% of its business outside the US.
2) PwC will have to shed 1/2 to 2/3 of BearingPoint’s commercial clients because of independence issues. With a business already struggling to close and keep engagements, you’re going to tell clients, “Thanks, but no thanks, we have to resign in the middle of your SAP implementation.” And BearingPoint has to resign these engagements before PwC closes the deal. PwC can not benefit from “selling” the contract to someone else.
3) And then there’s the contracts where BearingPoint is a subcontractor and the prime contractor or a material other subcontractor is a PwC audit client. This is a distinct possibility when looking at the Federal, state and local government contracts which are almost 30% of BearingPoint’s revenue and their largest and most valuable practice.
4) And then there’s the alliances. Oh, PwC folks reading, some of you know this is one of my favorite subjects. If only you had listened when you had the chance…
I must say this is a great article i enjoyed reading it keep the good work 🙂
Thanks for the background info, Francine. You do some great sleuthing 🙂
FYI – Headline on the Deloitte internal site today: “Deloitte announces the potential acquisition of assets of BearingPoint’s North American Public Services practice”
A straight buy-out of BE never made sense, which is the issue most people had with your original posts, which clearly alluded to a 100% purchase. This latest news is little more than a liquidation saleleading into bankruptcy proceedings for the remainder of BE.
I’d say you were about half right in your original post. D&T bought a portion of BE’s public services segment, which was a little less than 40% of their revenues, and PwC bought about 14% of BE’s revenue, represented by the commercial services segment. Together, just about 50%. But since you said it twice, I guess 50% + 50% = Francine was 100% right.
This is great news. Now maybe my Managing Durector friends will return my phone calls. I have a feeling that they have been told to talk to no-one. If only they were Toxic Assets there might be a way out…
Keane is almost in final stage of Acquisition of Bearing point. This is confirmed through an internal communication to Keane employees