Analysts applaud IBM buyout of PwC Consulting

Canadian IBM Global Services customers can look forward to an increased level of service and business expertise following the purchase of PricewaterhouseCoopers Consulting by IBM,

analysts said.

The US$3.5 billion acquisition, announced Tuesday, will see the global business consulting and technology services unit of the accounting giant PricewaterhouseCoopers (PWC) fold into IBM’s Business Innovation Services unit.

The deal, which according the two companies has been approved by IBM’s board of directors and PwC’s leadership board, is still subject to regulatory approvals and a vote by local PwC firms. Executives said the vote could be concluded around the end of its fiscal third quarter.

The acquisition means PwC Consulting will no longer pursue an initial purchase offering.

“”We always felt the best option for us was to be acquired by IBM,”” said Greg Brenneman, PwC Consulting CEO. “”This acquisition is an exceptionally good fit, both strategically and culturally,”” agreed Doug Elix, senior vice-president and group executive for IBM Global Services. “”Our businesses complement each other and we speak the same language.””

IBM, which employs 11,000 people in its Canadian services division, is expected to add 1,500 more through the acquisition. Worldwide, the deal will mean an addition of 30,000 employees to its force of 150,000 Global Services professionals working in 160 countries.

“”What this means is that IBM’s already huge presence in Canada is about to get even stronger,”” said Geraldine Fox, outsourcing global practice lead for Compass Management Consulting in Toronto.

Evans Research Corp. senior analyst Albert Daoust described the deal as a conservative move for IBM that will ensure its Global Services unit becomes even better able to meet the needs of IT mangers.

“”IBM customers will now have access to new people who are experienced with different software packages and have experience with different deployments,”” he said. “”The purchase gives existing IBM customers more individuals with a wider repertoire of skills. For them, there is no downside to this.””

Increased consolidation in this industry is to be expected, said Fox, and it is a customer-driven trend.

“”There has been a strong demand for a more business focused approach to technology-based solutions,”” said Fox. “”Corporate customers have frequently complained that they haven’t reaped the rewards of their investment in technology. I think this is going to be a step in the right direction towards addressing that concern.””

“”There has been a change in the information technology industry,”” agreed IBM CFO John Joyce. “”To remain competitive in their own markets and to be able to invest in IT wisely, our customers are looking for more than just hardware and software products. They want to know how an integrated technology plan can leverage their business plan. This is the focus of IBM’s strategy. We want to deliver superior business value to clients through the integration of technology and business profit insight.””

Two years ago, PwC Consulting was approached by Hewlett-Packard, which had initially tabled a similar acquisition offer worth US$18 billion. The deal eventually fell through, said Daoust, because of a mismatch in the two companies corporate cultures.

“”There is no question that they were right to back off at that time,”” says Daoust. “”Had HP purchased PricewaterhouseCoopers Consulting, they would have found themselves competing with the very same firms they provide technology services to. And they would have acquired a very large company with expertise in areas where HP is not strong. So the argument goes that they would have found themselves not really able to manage PwC Consulting. IBM understands the business PricewaterhouseCoopers is in and should be able to very successfully roll them into their organization.””

In Canada, IBM Global Services has signed or renewed outsourcing agreements with a variety of customers in the financial, insurance and retail sectors, creating “”centres of excellence”” in key sectors. Recent agreements include the National Bank of Canada, Sun Life Assurance and Aldo Shoes. In June, IBM signed a 10 year, $850 IT services deal with ManuLife Financial, which the partners said was the largest-ever contract of its kind in the Canadian insurance industry.

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