Consulting Firms Face Uncertainty Amid Regulatory Concerns and Volatile Market Conditions

Strategic Insights -

As the consulting industry navigates increased competition, rising costs, and regulatory scrutiny, firms such as PricewaterhouseCoopers, KPMG, and Ernst & Young are seeking alternative exit strategies. The added burden of regulatory concerns, coupled with the need to invest in technology, has driven several recent transactions. Companies like Andersen Consulting and KPMG Consulting are considering initial public offerings (IPOs) to raise capital and offer stock options to employees. Conversely, firms like Hitachi and Hewlett-Packard have sought to buy into consulting, leveraging their technological expertise and access to capital markets.

Key Takeaways:

  • PricewaterhouseCoopers' bid for its consulting business was withdrawn by Hewlett-Packard, leaving the accounting firm without a clear exit strategy.
  • Consulting firms face regulatory concerns regarding advice to audit clients, as voiced by Arthur Levitt, chairman of the Securities and Exchange Commission.
  • Companies like Andersen Consulting and KPMG Consulting are exploring IPOs to access capital markets and offer stock options to employees, crucial for attracting and retaining talent.
  • Independent consulting firms have aggressively formed alliances to reach capital markets, as seen in Andersen's joint venture with Microsoft.
  • Booz-Allen & Hamilton is creating an independent Internet consulting company that may go public, while PricewaterhouseCoopers must now pursue alternative options.
  • The value of PricewaterhouseCoopers' consulting unit can be expected to decrease if uncertainty about its future drives away employees.

Statistics:

  • KPMG Consulting plans an initial public offering, seeking to access capital markets and offer stock options to employees.
  • Booz-Allen & Hamilton is creating an independent Internet consulting company that may go public.
  • PricewaterhouseCoopers' value can be expected to decrease if uncertainty about the future of its consulting unit drives away employees.
  • Accounting firms hold a significant market share in the consulting industry, providing advice and auditing services to clients.
  • The number of employees leaving the industry due to stock option collapse is estimated to be in the thousands.

Sources:

  • "Hewlett-Packard Has Abandoned Plans for Consulting Unit Acquisition" (The New York Times)
  • "Consulting Firms Face Challenges Amid Regulatory Concerns" (Kennedy Information)
  • "Arthur Levitt Expresses Concerns Over Accountant-Auditor Conflicts" (Securities and Exchange Commission)
  • "Andersen Has Joint Venture with Microsoft" (Forbes)