Why private equity is obsessed with professional services firms
Private equity firms are increasingly enamoured by the professional services realm, where misfortune is stirring opportunities for the world’s buyout giants.
TPG Capital’s rejected play for EY’s consulting arm this week follows the firm’s bungled attempt to split into two, while Allegro Funds’ $1 deal for PwC’s Australian government services division in July came after the company got entangled in a shocking tax leaks scandal.
Christine Oliver, a senior managing director at Ankura Consulting, says one of the reasons private equity is drawn to professional services firms is their consistent cash flow. Oscar Colman
Despite the felicitous moment for private equity to carve up professional services, global shops like Deloitte and KPMG have been conjuring ways to split audit matters from non-audit business for years.
Auditors – scrutineers of giants like Google and JPMorgan – enjoy recurring revenues regardless of the economic conditions. Large companies rely on the big four to audit their accounts. Consultants, meanwhile, cannot chase business from a client their firm already audits.
EY’s botched attempt to split auditing from non-audit work – Project Everest – sought to minimise the impact of these conflicts: separate consultants, leaving them to pitch services to cashed-up companies like Amazon, without needing to worry which firm audits the business.
Christine Oliver, a former KPMG partner who left in February to join Ankura Consulting Group, said conflicts similar to what consultants face with auditors was a “primary reason” for leaving the big four.
“I come to work wanting to work with great people, and having the firm’s infrastructure stay out of my way,” said Ms Oliver, who leads disputes and economics for Ankura in
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