| | By Mick James
The saga of who will
buy A.T.Kearney from EDS
rolls on. First it
seemed certain that the
strategy arm would be
bought out by its
management. Then, as the
consultancy market
picked up, a trade sale
seemed more attractive,
and for a long time the
consensus in the market
was that the unit would
be sold to the Monitor
Group. Now that has
fallen through and once
again all options are on
the table.
I suspect this saga
will run and run. An
anonymous quote doing
the rounds talks of the
struggle to “structure
an equation that would
make everyone happy” and
this could pretty much
sum up the problems of
any disposal of Kearney.
From EDS'
perspective, and that of | |
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| | their stockholders,
happiness is pretty easy
to define. They’d like
the $600m or so they
paid for Kearney back,
preferably with
something to show for
their investment.
Unfortunately this
creates a problem when
trying to keep the 3,200
Kearney employees happy.
In an MBO situation,
they’re essentially
being asked to get into
debt to acquire
themselves, as most of
the holders of EDS'
original largesse will
by now have departed. A
trade sale will put them
in the same or a worse
position, as any
acquirer will want to
see a contribution to
the overall business in
addition to working off
the cost of acquisition.
In any normal MBO or
acquisition, growth
would be the answer, but
growth is notoriously | |
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| | difficult to achieve in
strategy consulting, the
sector being generally
characterized by massive
revenues per consultant
but relatively stable
firm size. Getting
bigger holds little or
no attraction to a
strategy house, and
while its conceivable
that two might merge, a
capital intensive
acquisition makes no
sense at all, diluting
both brand and ownership
while incurring debt.
Sooner or later the
brightest consultants at
Kearney must surely see
the benefits of being in
a similarly autonomous
position, and drift away
to other strategy houses
or to form their own
boutiques.
Which leaves us with
the trade buyer: who
would want to buy a
strategy consultancy,
and how would they make
it pay? If growth is | |
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| | out of the question then
where is the return
going to come from. All
the possibilities of
synergy with a larger
IT/outsourcing entity
must have been exhausted
during Kearney’s journey
with EDS. Many of the
problems at EDS stem
from strategy
consultants’ incredible
sensitivity to not being
seen as a “sales
front-end” to a larger
entity, and its hard to
see how that could work
any better if they were
bolted on to someone
else. It’s possible that
an Indian outsourcer
such as Tata or Wipro
might see Kearney as a
useful entrée into
boardrooms in the US or
Europe, but frankly a
loose partnership with
an independent strategy
firm would be far
cheaper and probably
more effective.
Many of the potential | |
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| | candidates in the IT
/outsourcing space seem
to be quite happy to
have no strategy
capacity at all. Those
that have made inroads
into this area, such as
IBM and Accenture, might
possibly be interested
in Kearney’s capacity.
However, given the
numbers of people these
firms recruit annually,
picking up an extra
3,000 consultants is
hardly a mammoth
task—and one they can
achieve for considerably
less than $600m. It
would seem that any
disposal would have to
be achieved at a massive
discount on the
acquisition cost.
Consultancy firms, it
would appear, depreciate
faster than new cars -
if you buy one it had
better be for life. | |
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