Taking Booz on board
PricewaterhouseCoopers is powering up its consulting business with Booz & Co acquisition
Not so long ago, the world's main accounting firms were known as the Big Five. They lost a member in 2002, when Arthur Andersen imploded following the revelation of massive accounting fraud at Enron.
The rest is history. In 2002, the US Sarbanes-Oxley Act banned accounting firms from doing consulting work for audit clients. PwC (PricewaterhouseCoopers) and others saw the writing on the wall and sold their consulting arms.
But today, the Big Four are once again heavily involved in consulting. While subject to the same independence rules required by Sarbanes-Oxley, the accounting firms are more or less compelled to be in the business for competitive reasons - any firm that stays out risks being overtaken by rivals in revenues and resources.
PwC never really got out of consulting. It sold its main consulting business to IBM in 2002 but kept certain services, such as the ability to advise clients on regulations. It has also been rebuilding its broader consulting franchise, and, on April 3, that initiative took a big step forward when PwC officially completed its acquisition of Booz & Co, one of the world's biggest corporate advisory firms with revenues of US$1 billion in its last fiscal year.
The Booz acquisition gives PwC a lot more depth in its strategic consulting arm - which advises big companies on business and financing strategies. It basically doubled PwC's strategic consulting operations in Asia.
The idea is that the strengths of PwC and Booz complement each other. Booz is good at big-picture strategy, while PwC is good at nuts-and-bolts implementation, such as helping firms build the technology systems - for example, mobile payment systems - that support a business strategy.
The acquisition also capitalises on greater demand for brand management and business development at a time when mainland firms are splurging on overseas acquisitions.
Andrew Watkins, who serves as head of PwC's consulting arm in Asia, is the man overseeing the integration of Booz into PwC in the region.
For complex legal reasons connected to Booz & Co's split from Booz Allen Hamilton, PwC cannot use the Booz name. Instead it has created a new brand - Strategy& - which will be a sub-brand within PwC, while PwC will still provide its own consulting services.
This will mean staff from PwC and Strategy& may pitch for the same business at the same meeting, but will be representing different firms with different name cards.
Watkins discussed the rationale for the acquisition with the South China Morning Post and why he thinks it will work.
Why did PwC buy Booz?
Post-Enron, [feelings] swung very much against accounting firms providing services beyond the audit to their audit clients. As things settled down, it was clear we could add a lot of value to our clients so long as it was subject to strict independence criteria.
There are many clients that are not audit clients and which are not subject to the independence restrictions. And a lot of the skills we have are valuable to these organisations.
How do you manage conflicts of interest?
We need to differentiate between audit clients and non-audit clients. For audit clients, we have strict rules on what types of services we can provide and how we manage independence. So I can't overemphasise how careful we are about that in this post-Enron world.
For clients who are not audit clients, we don't have the same independence concerns. So you can provide a broad range of services free of any taint of [conflict].
For example, we don't want to place ourselves in a position where we can be accused of auditing our own work. So we can't implement financial systems for an audit client.
[Post-Enron, the Big Four] shed their consulting arms, but that did not mean they shed all their advisory capability. The Big Four have continued to be strong in advising around deals, due diligence. That was never divested.
Similarly a lot of risk and regulatory advisory services were not divested; they were seen as a core part of the firm, and they were retained.
Will the consulting arm eventually be merged into one brand?
The market will tell us this a little bit. We hope the Strategy& brand will be around for at least two years. If the Strategy& brand is extremely successful as a sub-brand to PwC … maybe it will have longevity. Operationally, we'll all come together in a couple of years.
How do the two consulting arms work together?
In the run-up to the close of the deal, we've been doing a lot of planning around where we can work together in the market, what are the opportunities that we need to pursue.
We even have permission from some clients to do joint pitches. Prior to the close of the deal, we had to get client permission for that. Now we can attack the market together, fully and openly.
Is there much overlap?
The Booz acquisition fills in a lot of holes. They are serving a whole range of clients. If you look at our strategic ability, leaving aside tech and all the rest of it, we tend to be more domestic, with our client base in China.
They have a good mix of multinational clients and domestic, but slightly heavy towards the multinationals. The clients they have been serving and the clients we've been serving don't overlap to a huge extent.
What does Booz bring to PwC?
These are people who can operate at the C-suite level, who can advise boards and advise senior client buyers on issues relating to setting strategy for the organisation in all its manifestations.
These are people who have deep industry skills, often have been in industry, have strong academic backgrounds, who are often steeped in management theory.
We felt that … combining Booz and PwC was putting the best of both worlds together, so that we could deliver strategy that was underpinned by the ability to deliver it and execute it in practice.
A lot of strategic projects, you end with a report but not the ability to execute it. And so the combination of Booz and PwC allows us to bring the best of both together.
What were PwC's strategic advisory skills prior to Booz?
They were reasonable, but now they are very strong in China [including Hong Kong].
We've essentially doubled the size of our strategy capability through this, so we've added about 80 consultants and 15 partners and principals in the Booz entity in China.
Our consulting headcount for PwC in China is about 800 people, plus we have a service delivery centre, which adds another 400 to 500 people. Booz's on-the-ground ability in China is about 80. But they are active in mobilising talent.
Any downsizing planned post-acquisition?
There is not going to be any of that … the opportunity is bigger than what both of us can service right now. It's all about revenue synergy. It's all about how can we take this and scale it.