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March 30, 2009

Deloitte, PwC put forward bids for BearingPoint’s US practices

Leading US accounting firms are in the process of securing significant assets of bankrupt consultancy BearingPoint.

Deloitte US has signed an agreement to acquire the assets of BearingPoint’s North American public services practice for $350 million. PricewaterhouseCoopers (PwC) has signed an agreement in principle to acquire a significant portion of BearingPoint’s North American commercial services practice, which includes the firm’s financial services segment, for $25 million. And, PwC Japan’s advisory firm has reached an agreement in principle to acquire and integrate with BearingPoint’s entire Japan practice consulting business.

The agreements are subject to approval by the bankruptcy court. By law, BearingPoint must also consider “higher and better” bids, and there is no assurance that these offers will go through. BearingPoint is a global management and technology consulting company that filed for voluntary Chapter 11 bankruptcy protection on 18 February this year.

A global sale

A BearingPoint spokesperson told the International Accounting Bulletin that selling off these US practices is part of a global reorganisation plan.

“We’re also in late term negotiations with many of the non-US management teams for them to buy out their practices. They would take over ownership of their respective businesses and probably continue to use the BearingPoint name but would operate as independent entities,” he said.

Deloitte described the acquisition of BearingPoint’s public services practice as a “compelling strategic transaction”.

“We have seen strong organic growth in this business over the past five years, and the addition of BearingPoint’s projects and practitioners would position us for even stronger performance as government agencies in Washington and around the country confront significant challenges,” Deloitte said.

BearingPoint’s public services business focuses on all tiers of government but the bulk of its work is federal. The practice generated revenue of $1.4 billion in the 2006-2007 financial year.

PricewaterhouseCoopers US advisory partner Randy Browning told the International Accounting Bulletin the firm is attempting to acquire most of the assets from BearingPoint’s US commercial services practice, with the exception of contracts that would breach US audit independence rules.

“As part of continuing to build and grow our advisory business we have found that to help companies through significant change and business transformation, the technology aspect of those projects are critical. What this does is supplement and boost that growth and further compliment the resources we have,” he said.

Browning said BearingPoint is particularly strong in the energy and utilities, banking, insurance and pharmaceuticals sectors and would add technology skills in Oracle, SAP and other areas.

Long-term play

Although the economic downturn is affecting the demand for IT consulting, Browning said the investment is part of a long-term strategy to build capability and market share.

BearingPoint formed out of KPMG Consulting in 2002 and has suffered financial problems in the past few years. After posting positive financial results for the first time in three years last August, the firm’s stock value plummeted on the New York Stock Exchange to 18 cents with market capitalisation of only $39.2 million. In 2002, BearingPoint shares were worth $8.80.

BearingPoint filed for bankruptcy protection in the US to facilitate financial restructuring in order to reduce debt and improve its capital structure. BearingPoint chief executive Ed Harbach said the firm has been committed to “charting the best possible course for the people, clients and creditors of BearingPoint”.

“We have concluded that a sale of the company’s business units maximises value and provides the greatest stability for all interested parties,” he said.

“We are pleased that several parties have expressed interest in purchasing the majority of the company.”

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