Consulting deal pushes IBM to No 2

By ADAM GIFFORD

IBM's proposed US$3.5 billion ($7.5 billion) purchase of PricewaterhouseCoopers' business and technology consulting arm could push IBM's services revenue in New Zealand past $200 million.

International Data Corporation analyst Mark Cribbens said about $160 million of IBM New Zealand's $341 million revenue last year came from services. The corporation estimated that PwC Consulting took in about $40 million.

"The combined company will have about 10 per cent of the New Zealand IT services market," Cribbens said.

This would consolidate its position as No 2 behind EDS in this market, and provide a significant lead on Hewlett Packard, which was estimated to have managed services revenues of between $80 million and $90 million for last year.

The IBM-PwC deal, which has yet to be approved by regulators and PwC partners, was driven by IBM's need for more consulting firepower and by the pressure coming on the major accounting firms to fully separate their consulting and audit roles following the Enron and WorldCom scandals.

PwC had intended to float its consulting arm under the name "Monday", but the slump on Wall Street had it scurrying around for a buyer instead.

It will regret not clinching a deal in late 2000 with Hewlett Packard, which had considered paying up to US$15 billion ($32 billion) for the consulting firm.

Based on its expected 2002 revenues of US$7 billion ($15 billion), the price it is getting is considerably less than the US$5 billion-US$7 billion it might have expected, based on what the market is paying for shares in listed rivals Accenture and KPMG Consulting.

PwC Consulting's presence in New Zealand has been shrinking in recent years as major IT projects, which are the lifeblood of large consulting firms, dried up.

While it refuses to reveal customer names, its major clients here include Inland Revenue, Land Information New Zealand and Fonterra.

Accenture, the consulting firm spun out of accounting firm Andersen, gave up on the New Zealand market in May and closed its offices with the loss of 100 jobs.

PwC Consulting is believed to have about 80 staff here, while IBM's consulting and services division accounts for about 400 of its 700 staff.

Across the Tasman, PwC consultants are steeling themselves for job losses. IBM is expected to cull many managers and partners.

IBM has about 9000 staff in Australia, most of them in services.

PwC Consulting Asia Pacific chief operating officer Andrew Stevens said the PwC staff will be merged into the Business Innovation Services division of IBM Global Services, creating an organisation with 30,000 people across the region.

He said some redundancies were likely.

"We have to look at synergies in the business.

"The acquisition is about intellectual capital which is in nothing but our people."

He said PwC Consulting had the largest SAP and Peoplesoft practices in Australasia and was a preferred implementation partner for Oracle.

"We believe this will transform the professional services industry in every geography," Stevens said.

IBM Global Services general manager for Australia and New Zealand, Brendon Riley, said the merged organisations would try to combine their consulting, industry, business process and technology capabilities, "to deliver superior value to customers seeking to build their local, regional and global competitiveness."

Cribbens said the main impact here would be boosting IBM's ability to deliver advice on high-end business strategy.

"The leap between IT and business, that will be the main benefit."