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Monday, 30 May 2016

Black-eye shades

PwC-Booz merger adds up to a major culture clash

PricewaterhouseCoopers’ proposed takeover of strategy firm Booz & Co would be the most prominent example yet of a Big Four auditor bulking up on consulting. But restrictions enacted after the massive Enron scandal of 2001 mean advisory-services staffers could end up brawling with accountants over clients. While mid-sized Booz may feel pressure to compete with rivals like Boston Consulting Group and McKinsey, the proposed deal with PwC risks a huge culture clash.

There is some strategic sense to the tie-up. Growth in auditing and compliance, accounting firms’ traditional bread and butter, has leveled off since the 2002 enactment of Sarbanes-Oxley. Revenue from advisory services, such as corporate strategy, tax and legal advice, is growing faster.

That’s driving consolidation in the industry. In January, Deloitte bought Monitor Group, a formerly high-flying strategy shop that had fallen on hard times. Adding Booz’s consultants would give PwC the kind of boardroom gravitas its existing advisory business lacks.

Booz also has good reason to pursue the deal. Demand for high-priced advice delivered by clever people in sharp suits has yet to recover fully from the financial crisis. Clients in the market for such services increasingly want consultants to work on global, company-wide projects. That gives big firms that can advise on both strategy and execution an advantage. Mid-sized consultancies like Booz risk being squeezed out.

Still, mashing the two firms together could spark an epic culture clash. Sarbanes-Oxley restrictions on cross-selling audit and advisory services are still in place – auditing clients can’t be consulting clients, and vice versa. That could spark tensions if Booz consultants who join PwC end up sidelined on accounts they’ve been cultivating for years. Prestige and pay may also prove divisive: C-suite strategy consultants tend to cost more than their Big Four counterparts.

The planned merger’s economic logic means it may not be as big a turkey as, say, “Monday,” PwC Consulting’s widely derided 2002 rebranding effort. But the accounting firm may eventually have to dangle some big checks in front of top Booz talent to keep it from walking out the door.

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Context News

Accounting and consulting firm PricewaterhouseCoopers announced on Oct. 30 that it had struck a deal to buy corporate strategy consultants Booz & Co to bulk up its advisory and tax business.

The companies said the merger is subject to approval by Booz partners, who are scheduled to vote on it in December. Financial terms of the transaction were not disclosed.

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