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PwC-Booz Merger: How Will It Affect The Middle East

PwC-Booz Merger: How Will It Affect The Middle East

Following the completion of PwC’s acquisition of Booz & Company, senior partners Hani Ashkar and Per-Ola Karlsson, explain why the deal could have its largest impact in the Middle East.

As I prepare to take the lift in Dubai International Financial Centre’s Al Fattan Currency House, I cannot help but notice the words Booz & Company still visible on the floor guide to my left.

Soon the name will be scrubbed from walls across the world, following the completion of one of the most prominent acquisitions by a major accounting firm in recent years.

Greeting me in a meeting room a few steps from the newly named PwC consulting unit Strategy&’s reception are two of the figureheads tasked with leading the merged entity in the Middle East, and they waste no time in conveying its significance for the region.

“The Middle East is one of the hottest consulting markets in the world right now…and getting a lot of attention from global consulting firms,” explains Hani Ashkar, Middle East senior partner at PwC.

“Part of the reason that the combination made a lot of sense was it would enable PwC and the combined firm to have a leading position in the region in this space.”

The consequences of the deal are of course far from region specific, adding 3,000 employees worldwide, while marking what has been a dramatic shift in strategy for PwC since the accounting scandals of the early 2000s.

Coming baCk to ConsultanCy

The indictment and collapse of Enron auditor Arthur Andersen in the opening years of the millennium, followed by several other scandals, led PwC and its peers to scale down or spin off their consulting operations.

At the time, Arthur Andersen’s lack of scrutiny towards Enron’s books was blamed on the substantial consulting fees the energy trader generated for the firm, and deemed to have lead to Enron’s eventual failure.

Amid the scandal in May 2002, PwC announced its consulting activities would be spun off as an independent entity, which it sold later that year to technology giant IBM for approximately $3.9 billion in cash and stock.

Since then PwC and other accounting firms that divested their consulting arms have slowly sought to rebuild their operations, with US regulators estimating that there have been 36 acquisitions of consultants by accounting firms since June 2012.

Last fiscal year, PwC’s consulting business made up nearly a third of its revenue at $9.2 billion or 28.5 per cent of its $32.1 billion total, up from 21.7 per cent in 2009.

Consulting was also growing faster than its core auditing business, rising 7.6 per cent at constant exchange rates in 2013 over the previous year, compared to only 1.4 per cent for auditing revenues.

But there were several other key reasons driving the merger, reveals Hani Ashkar, Middle East senior partner at PwC.

Among them, he says, were clients’ growing expectations, whereby they were not only looking for strategic advice but an end-to-end solution to help define, articulate and execute their vision.

“On our own, neither company would have been able to do that,” adds Ashkar. “Our competitors, if they are in the top end of that strategy spectrum, may be able to articulate the vision but their structure, rates and depth of capabilities means they won’t be able to accompany that client through all the phases of the implementation and execution as it goes through.”

While Ashkar admits the impact will be more significant for large scale transformational projects than smaller ones, Per-Ola Karlsson, the newly appointed senior partner Middle East for Strategy&, also points to other possibilities that a broader set of capabilities will bring.

These include catering to client’s increasingly complex needs such as supply chain optimisation, which not only requires logistics flows and warehouse placement, but also understanding of financial flows, transfer pricing and tax optimisation.

“You find lots of these types of areas where just the ability to combine the skillsets opens up new opportunities for us to serve clients,” he says.

MORE THAN STRATEGY?

One of the most surprising aspects of the merger, particularly given Booz & Company’s strong brand legacy, was the renaming of the unit to the somewhat unusual ‘Strategy&’. But it did not come by choice.

A condition of the company’s split from Booz Allen Hamilton in 2008 meant that if Booz & Company changed ownership, it would be unable to use the Booz name anymore.

Ashkar admits, particularly in the Middle East, there is significant brand value associated with the name given its position as one of the region’s oldest consulting firms, and he reveals it would likely have been kept if it were possible.

“That name was very well respected and very well recognised and there is no reason we wouldn’t have kept it in some form or variation,” he says.

With its new name choice, PwC so far seems to have avoided the same controversy it attracted in 2002, when its newly spun off consulting unit was renamed ‘Monday’.

The entity’s CEO, Greg Brenneman, described the name at the time as “a real word, concise, recognisable, global and the right fit for a company that works hard to deliver results” but it was a source of jokes and criticism in the media.

This time around, Karlsson says, he’s sure that “some raised their eyebrows” when they read Strategy& for the first time, but “others recognised the opportunities” the name provides. According to Ashkar, the ampersand was added to the end of Strategy& to make it clear that the entity was “about more than just strategy” and designed to start a conversation about its meaning.

NEW MOMENTUM

Outside of the name change, both executives argue that much is going to stay the same at what was Booz & Company.

Ashkar insists PwC won’t be “closing any offices or laying off any staff,” but he does reveal, however, that the company’s competitors have been “quite aggressive” in their recruitment in response to the deal, resulting in some staff moving on.

“We mentioned that the Middle East is one of the hottest consulting markets, and there is a war for talent out there,” he says.

“There has been a great demand for the people in the combination. Some of them chose to move on to other things but most of the others have remained.”

In its regional operations, the firm’s focus on GCC countries with ambitious “plans for change” like the UAE, Saudi Arabia and Qatar is expected to remain, although Ashkar admits PwC is also turning its attentions to large-scale projects in Libya, Egypt and Iraq and has an eye on Iran, should international sanctions be lifted.

Ultimately, both men argue that the deal has accelerated PwC’s Middle East strategy rather than drastically changed it, with Karlsson claiming it has propelled the firm into the “unquestionable leadership position in the market right now”.

A goal, he says, the deal has helped achieve far more quickly than PwC could have managed on its own.

For now, however, one question remains. What are PwC’s competitors planning in response to the deal? Ashkar believes competing firms will “certainly consider” their own large-scale deals, stressing, however, that the options are limited.

“This was probably one of the few opportunities out there to combine two large storied firms,” he says.

“Any other combination beyond that would be pretty earth shaking for the industry because you’re left now with three large management consulting firm. Those that are below the level of the top three are going to be involved in some sort of merger or combination.”

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