IBM buys PwC Consulting: expands SAP and PeopleSoft practices

IBM is to acquire the consulting arm of PricewaterhouseCoopers LLP for $3.5 billion, a figure that’s being seen as a considerable bargain in light of PwC’s estimated $4.9 billion 2002 revenues, 30,000 employees and massive SAP and Siebel CRM practices – as well as its strength in high flying PeopleSoft. It means the end of PwC Consulting’s proposed IPO, which was in the making before the Enron scandal broke and which is currently forcing some accounting giants to isolate their consulting operations as rapidly as possible. The deal, if it is approved, will also be the final chapter or PwC’s consulting operation which, in 2000, was to be acquired by Hewlett-Packard for $18 billion before its share price fell, as the firm attempted to mimic IBM in combining hardware and services operations. PwC Consulting will be absorbed into IBM’s massive global Business Innovation Services, joining what is currently a 150,000 strong services organisation that last year posted revenues of $35 billion. Services will continue to include the full range, from consulting through implementation and integration, ASP, hosting and the rest – and remember IBM’s increased emphasis on the M part of SMEs with its recent ‘Manage IT for me’ offering. IBM says it will also use PwC’s resources to emphasise ‘integrated business solutions,’ which involves trying to boost sales by bundling consulting services, hardware and software. The deal, expected to conclude around the end of Q3 2002, could also trigger a wave of consolidation within the computer services industry as other major players try to match IBM’s new stature. The acquisition increases the size of IBM, already the industry’s largest player, by about 20% based on employees. John Connolly, general manager within IBM’s Global Services group, says. “I think we are in the midst of an enormous transformation of the professional services industry. IBM just shook it up.” IBM was widely believed to be trying to bolster its huge services operation, as the hardware industry remains slumped. Analysts also say the industry has been consolidating, in part in response to the broader corporate trend toward outsourcing. As more large companies turn to outsourcing to reduce fixed costs, computer services companies have been trying to become large enough to compete for larger, multi-national contracts.