Arthur Andersen in merger talks with KPMG

An international merger between accounting and consulting firms KPMG and Arthur Anderson probably won’t affect Canadian technology services, say two Canadian analysts.

International accounting and consulting firm KPMG Inc. and Arthur Andersen LLP confirmed Monday they are currently in merger talks involving Arthur Andersen operations outside the U.S.

In a statement released Monday by Arthur Andersen, the company said that while the discussions continue, employees of non-U.S. branches of the company would remain part of the Andersen Worldwide network until October or until any transaction is complete.

“As a firm, we are committed to moving forward with reforms that will create higher standards and restore the public’s faith in Arthur Andersen and the public accounting profession,” the statement reads.

The “public faith” restoration Arthur Andersen seeks follows criminal charges the company faces stemming from the auditing of controversial Houston-based energy trader Enron Corp. So far, Canadian, Asian and European senior partners at Andersen have come out strongly in support of the merger.

Roy Fraser, director of marketing for Andersen in downtown Toronto, said it is much too early to talk about the nature of the discussion, let alone any impact a decision would have on specific sectors of the companies.

“That (the talks) include 85 or 86 countries including Canada and discussions are just beginning and before any is finalized, you are looking at months as opposed to hours,” he said. “KPMG has separate consulting practice and part of this transaction is to figure out what elements of Andersen business consulting would better fit.”

But Vito Mabrucco, group vice-president at Toronto-based IDC Canada, said because of past company restructuring, technology practices wouldn’t see much change if the companies merge.

“But, from the point of view of Andersen Canada, it has got to be the relief they are looking for in signing up with KPMG,” he said. “If the two companies do merge, they will end up having to split off their consulting businesses, so KPMG and KPMG Consulting will have to go their own ways.”

The past company restructuring came with the end of a nasty three-year battle which saw Andersen Consulting split from Arthur Andersen to become Accenture Ltd. in August 2000. When the consulting unit left, so did much of the technology sector of Andersen. Even with the ugliness associated with the split, Mabrucco said it was fortunate the company didn’t wait much longer. Many other companies that are splitting now are falling victim to a soft market that leaves them vulnerable to companies looking to acquire them, he explained.

“The two combined would have more, and fold Andersen Consulting into KPMG Consulting and create a bigger one. But there is no question that they will have to split it off because they would have to go to market having both auditing and consulting and that is being seen as a no-win situation,” he said.

Acquiring Andersen’s current clients would bring KPMG to a larger critical mass in Canada, he explained.

“What I am saying is that this is probably a good thing,” Mabrucco said.

A KPMG spokesperson said Monday that the company would continue to work to look at possible ways to combine the operations in Canada, Europe, Africa, Middle East, Asia and Latin America.

“We do an awful lot of different types of consulting, from strategy to business transformation and IT consulting as well,” Fraser said. “When you think about the sensitivity around providing IT consulting to audit clients, that’s the piece we are going to have to focus on.”

Rick Penton, Toronto director of the Canadian Information Processing Society (CIPS), said he doesn’t believe the controversies facing the accounting areas of the company will drip into the consulting side. However, he added, the Andersen name is going to have to work at rebuilding itself.

“As far as reputation, I would think that if a name is damaged in one jurisdiction and you are using the same name elsewhere, it will probably be damaged there as well,” he said.

Arthur Andersen, with offices around the world, is at

KPMG, with offices around the world, is at

The Canadian Information Processing Society is at

IDC Canada in Toronto is at