IT services provider KPMG Consulting Inc. has signed a letter of intent to acquire most of Andersen Business Consulting’s IT services operations – but it’s too early to say how this will affect its Canadian operations or clients, according to KPMG’s Toronto office.
KPMG Consulting is offering US$284 million to buy up to 23 of Andersen Worldwide’s business consulting units, which provide IT and business management services, the McLean, Va.-based company said in a statement Wednesday.
The letter of intent includes the unit from Arthur Andersen LLP, which is Andersen Worldwide’s U.S. firm, KPMG Consulting said. The other units on the table are in Asia-Pacific, Europe and Latin America.
KPMG Consulting already has completed the acquisition of two of the 23 units on the table: the China and Hong Kong IT consulting practices.
The deal would significantly expand KPMG Consulting’s offering portfolio, staff, market share and list of clients, putting it in a better position to compete against other IT services providers, such as IBM Corp. and Electronic Data Systems Corp. (EDS).
“We clearly saw the complementariness and the added strength of our two businesses,” KPMG Consulting Chairman and Chief Executive Officer Rand Blazer said during a conference call Wednesday morning to discuss the proposed deal. The deal would be complementary in terms of industries and geographies, Blazer added.
In terms of industries, KPMG Consulting is strongest in the public services, communications and content, and financial services industries, while the Andersen Worldwide units would provide a boost in industries such as pharmaceutical, utilities, biotechnology and consumer and industrial markets, Blazer said.
“The combined company would have great balance in the targeted industries we serve,” he said. “It’s a very good fit between us, very complementary.”
In terms of geographies, “there’s also a tremendous fit,” he said.
Clients of the Andersen Worldwide units would benefit from dealing with KPMG Consulting, which is a stable company, as opposed to Andersen Worldwide, whose environment is very disruptive currently, said Andy Efstathiou, a Yankee Group analyst.
The move is also a good one for KPMG Consulting, he added.
“KPMG Consulting wants to grow aggressively, and their business lines are very complementary,” he said.
Andersen Worldwide, based in Switzerland, and its U.S. firm Arthur Andersen LLP, based in Chicago, are struggling to survive their involvement with bankrupt energy trader Enron Corp. Arthur Andersen LLP was Enron’s auditor, and Enron’s accounting practices are at the centre of the scandal that brought down the company.
As a result of the Enron debacle, Arthur Andersen LLP faces numerous lawsuits, a criminal trial on an obstruction of justice charge and a client exodus. It pledged earlier this year that it would transform itself into a company that provides only auditing services and that it would get rid of its other consulting units.
KPMG Consulting’s acquisition of Arthur Andersen LLP’s business consulting unit depends on Arthur Andersen LLP resolving “in the most prudent and most effective way” the liability issues it faces, Blazer said.
“A prerequisite for us…is that major liability issues be resolved to our satisfaction prior to close,” he said. “We understand very clearly the potential liabilities…(and) we’re not interested in putting our shareholders or our population at risk.”
KPMG Consulting has set a timetable of 30 to 45 days for reaching definitive agreements with the Andersen Worldwide units that still haven’t signed one, and to close the deals by this year’s third quarter, Blazer said.
KPMG Consulting is a publicly traded company no longer associated with its former parent company KPMG International.
– with files from IDG News Service