- The Washington Times - Tuesday, June 18, 2002

KPMG Consulting Inc., the world's third-largest accounting firm, agreed last week to buy accounting firm KPMG International's German, Swiss and Austrian information-technology units for $685 million to build its European business, a move that will double the company's operations.

The news had little immediate effect on the stock, which has been trading in the midteens for the past two months. However, shares of KPMG Consulting, of McLean, rose 92 cents yesterday to close at $16.02 yesterday on the Nasdaq.

"Overall we can look at the acquisition announcement as a net positive for the company," said Joseph Vafi, analyst with Robertson Stephens. "When they did their IPO last year … they didn't really have any operations in Europe because the parent company kept those."

KPMG Consulting was spun off last year by KPMG International. Now the local company is acquiring KCA, its sister information technology consulting firm, in addition to its previously announced plans to acquire several consulting units of Arthur Andersen LLP in 23 countries.

"We really did lack a hold on the European marketplace that would let us compete more equally with companies like Accenture," said John Schneidawind, spokesman for KPMG Consulting. "And so with the two recent acquisition announcements, we think we've gone a long way toward fulfilling the promise we gave to investors to become truly global players."

The purchase of the KPMG Europe units will be financed by issuing debt and equity, said the buyer, which plans to distribute 3.8 million options to workers in those overseas units. KCA employs 3,200 people in Europe. Its clients include global giants Deutsche Bank AG, Siemens AG and Bayer AG.

KPMG International was the first accounting firm to spin off its consulting units to remove perceived conflicts with their audit work.

Arthur Andersen, found guilty on Saturday of obstruction-of-justice charges, last month announced the sale of most of its consulting business to KPMG Consulting. Those units are in Japan, Norway, Finland, Switzerland and Sweden.

KPMG Consulting has also purchased parts of Andersen's consulting units in Australia, Hong Kong and China and is said to be discussing more purchases.

"We were the first of the big consulting firms to separate from the audit and tax practice," Mr. Schneidawind said. "So we have independence unlike [other consulting firms] … in the post-Enron era that independence is a key asset to us."

Edward Caso, analyst from Wachovia Securities, agreed.

"We believe that [KPMG Consulting] will be a major beneficiary of the auditor independence issue," Mr. Caso wrote in his most recent report on the consulting firm. "We believe that [the company] is the best positioned stock in our universe to benefit from an upturn in [information technology] spending."

Spending by American companies on systems consulting, development and integration has fallen off in the past year. Spending on the type of services that KPMG provides slipped 9 percent between 2000 and 2002, to $42 billion, according to Jupiter Research. Last year was even worse, with a 15 percent drop in spending.

The downturn is reflected in KPMG Consulting's earnings. The company reported for its fiscal third quarter ended March 31 that net income fell 20 percent to $23.75 million (15 cents per share) from $29.54 million (a loss of 83 cents) a year earlier.

Meanwhile, net sales fell 22.5 percent to $582.3 million from $750.9 million.


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