The largest deal in consultancy history has seen Cap Gemini buy Ernst & Young’s consultancy arm in a £7bn deal. The agreement follows hot on the heels of PricewaterhouseCoopers’ demerger of its consultancy arm.
Under the terms of the deal, Cap Gemini will acquire almost all of Ernst & Young’s consulting business, with a headcount of around 18,000 and 1999 revenue of 3.5bn euros, for a maximum of 43.5m shares and £228m cash.
Around 36 percent of the equity of the combined group will be held by E&Y partners.
It is believed that this deal and the PwC announcement are a result of pressure being placed on accountancy firms by America’s Securities and Exchange Commission. There have been regulatory concerns about conflicts of interest between operations that audit companies’ books and consulting businesses that sell services to those same clients.
With a large consultancy business under its wing (E&Y finished sixth in MC’s top 100 survey last year), Cap Gemini will seek to become a major player in the US, where it aims to earn a third of its revenues, and strengthen its position in Germany. The IT company also plans to considerably expand its consultancy services and focus on the challenges of the connected economy.
Ernst & Young will be legally barred from competing with the new consultancy giant for five years and has confirmed that it will not separately re-enter the consulting business. Cap Gemini will be able to use the E&Y brand name for up to four years.
Phil Laskawy, chairman and chief executive of E&Y, said: “We have an absolute shared vision of where we have to go. We did have other opportunities, we were approached by an array of other organisations, but we only wanted to talk to Cap Gemini.”
In order to complete the deal a vote will be put to E&Y’s partners on a country by country basis. The results will be announced in April.
Cap Gemini shareholders will then meet in June 2000 to discuss and approve the terms and conditions of the transaction.
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