07.31.02
Fire Sale
Given the headlines of accounting industry irregularities lately, no news is probably good news. But at 6:00 in the evening yesterday there was something late breaking: IBM’s acquisition of PwC. Yes, $3.5 billion for the same outfit that HP wanted to throw $18 billion at barely a couple years back.
What a difference a day, or in this case, a dot com implosion and an accounting industry shakeout makes. But more has changed than the price alone.
When HP pursued PwC, dot coms were still hot. At the time, we thought the idea of a computing vendor buying a consulting firm was risky, because the assets of the consulting firm — people — were only as firm as the provisions of their no-compete clauses. But today, with consulting firms laying off people, buyers like IBM don’t have to worry about retaining staff, they can probably cherry pick them. More importantly, the fit is much better than HP because IBM is already highly experienced at enterprise consulting. If anything, PwC gives them new vertical solution consulting depth.
Admittedly, bigger isn’t always better, as EDS found out the hard way with A.T. Kearney, an acquisition that had a different culture, target market, and sales cycle. IBM Global Services and PwC are a closer match, maybe in some ways overlapping. For now, bigger will likely be the rule at the high end — we expect this deal to drive more M&A among the EDSs, CSCs, and what’s left of the Big Five. Once we get through the current downturn (no crystal ball predictions here), less competition at the high end of consulting will create new opportunities at the price-sensitive lower end.