A firm which is now thriving, BearingPoint has risen from a complicated history to become one of the globe’s largest management and consultancy firms, thanks in part to its long-standing industrial heritage. While the firm’s name only dates back as far as 2001, BearingPoint’s roots go back over 100 years to the early days of two of the biggest names in professional services: Arthur Andersen, founded in 1913; and KPMG, founded in 1987.
In 1997, KPMG LLP opted to splinter its consulting arm off into a standalone business. The following years under its parent were tumultuous for KPMG Consulting, with professionals at the firm restricted by its lack of independence, and so in a push for full autonomy, in February 2001 KPMG Consulting spun off from its accounting firm in a $2 billion initial public offering. To emphasise its newfound independence, the company rebranded as BearingPoint in October 2001 and listed on the NASDAQ. Its moniker was selected from 550 potential names – which was believed to resemble the company’s “commitment to set a clear direction for clients,” according to Rand Blazer, the American businessman serving as the company’s CEO at the time.
The firm’s move to independence was hastened by the Enron scandal. After the massive US energy company imploded following alleged accounting improprieties, the face of the entire accounting and consulting sector was completely changed. Arthur Andersen, which had then been a member of the ‘Big Five’, had provided Enron with both consulting and accounting services, and when the firm’s auditing irregularities came to the surface, allegations of conflicts of interest and a wave of criticism followed. In a rapid succession of developments, including public outcry and enhanced regulation from the Securities and Exchange Commission (SEC*), the consulting arms of the five largest accounting firms – Arthur Andersen, Deloitte, EY, KPMG and PwC – decided to distance themselves from their auditing practices.
The consulting arm of Arthur Andersen split off to become Accenture, EY Consulting was sold to Capgemini to form what today is known as Capgemini Consulting, and Atos picked up two country organisations of KPMG Consulting (UK and the Netherlands) from under the nose of their international parent to launch Atos Consulting in Europe. PwC’s consultancy arm, PwC Consulting, spent millions of dollars to change its name to ‘Monday’, before being acquired by IBM for a fraction of an amount which it had rejected months before. PwC Consulting received $3.5 billion for its assets, nowhere near the $18.5 billion which HP bid at the peak of the tech boom in 2001. Deloitte was close to selling its consultancy wing, and renaming it to Braxton, but ditched both plans in 2003 citing pricing pressure and a lack of demand as negating the business sense of a split, instead opting for an integral professional services strategy.At this stage, the newly independent BearingPoint already had 16,000 employees in more than 50 countries across the globe, generating a collective revenue of $2.9 billion. Despite boasting impressive numbers and a strong position in the global market, however, the firm struggled from day one. The completion of BearingPoint’s IPO occurred six months after the date originally planned, as the market for IPOs and for hi-tech consulting services had plunged, resulting in the firm’s ownership cashing in on a price which was well below the consultancy’s actual value. This meant that after an ambitious series of international acquisitions, including 40 international subsidiaries from Arthur Andersen and the Irish, Swiss, Finnish, German and Austrian consulting firms of KPMG, the $2 billion raised by the process had been spent.
A second bloodline
The acquired consulting arms of Arthur Andersen fused a second major bloodline with BearingPoint’s DNA. Established in 1913, in Chicago, Arthur Andersen had maintained a position as one of the world’s five largest accounting firms since, and by the 1990’s its consulting wing had likewise become the globe’s largest management consulting firm. The mixture of KPMG Consulting’s culture with that of Andersen Consulting provides the industrial pedigree at the heart of BearingPoint’s subsequent success.
That was not before a further period of trouble, however. The consultancy was still using KPMG’s technology, including PEAT, a system for accounting and human resources functions. PEAT was not designed for a public company or for the internal control requirements of Sarbanes-Oxley. Buckling under mounting pressure to have a better system in place, BearingPoint rushed the roll-out of a new system, called OneGlobe. The go-live turned out to be a disaster, and according to reports filed at the SEC, almost immediately after the OneGlobe system went live in April 2004, “users couldn’t track jobs clearly, get bills out, and receive data and reports they were sure were accurate.”
Coupled with technical difficulties, the company also faced accounting problems. Auditors from PwC found a long list of internal control problems and financial errors in company statements. On top of this, BearingPoint was also troubled by on-going law suits from KPMG regarding a multitude of issues, including leases and technical services.
When, in 2005, the SEC announced that it was launching a formal inquiry into BearingPoint’s books, the developments started accelerating. By this point, Harry You, formerly Chief Financial Officer at Oracle, who took the helm in May 2005, had replaced 9 of the top 20 executives, and acknowledged a very long list of accounting control problems. He tried to rebuff BearingPoint’s wrong-doing as a company by stating that most of the firm’s financial and legal problems could be traced to a former management team inherited from KPMG that “didn’t know what they were doing…. The previous management had not worked before in a public company, and they didn’t know the rules, and frankly they were not competent in many areas.”For the next two years, BearingPoint would continue to have difficulty filing its books in a timely fashion, and as its business deteriorated, propelled by high attrition in the firm’s ranks, the advisory firm struggled repaying its debts. By May 2008, BearingPoint’s stock price languished at just $1.95 – having stood at $8.89 in 2006, and in March 2002 had been as high as $21.49. The firm’s cash reserves were close to being depleted, and in an attempt to save the company, the next CEO in the hot-seat, Ed Harbach, entered negotiations with buyers. The attempt failed, and when the NYSE suspended trading in November 2008, BearingPoint stock was worth pennies. On February 18, 2009, BearingPoint Inc. filed for Chapter 11, preferring to liquidate rather than restructure.
Following the announcement, rivals circled as vultures around the well-respected professional services firm. In North America, Deloitte purchased BearingPoint’s successful government business for $350 million, while the firm’s state and local government business was acquired by Keane, an IT services company. PwC acquired two arms – a large chunk of the private sector business in North America, and the Japanese division. In Brazil, the business was sold off to CSC.
A thriving return
Despite a protracted demise in North America, BearingPoint’s Europe, the Middle East and Africa business, had continued to perform well. As it was still profitable, the firm opted to continue as an independent Netherlands-based partnership. Under the leadership of Peter Mockler and the Partner team, the EMEA business completed a near €70 million European-wide management buyout (MBO).
BearingPoint in its current form has seen exponential growth since then. Revenues now stand at €712 million, with a headcount of 4,340 employees, up from €441 million and 3,140 staff respectively in 2009. “The tough time following the Chapter 11 of our parent company created a decisive moment for the European leaders in the firm – a moment we seized to create the independent BearingPoint partnership we are proud to be part of today,” said Mockler back in 2009.
On the firm’s successful run since, the CEO, who is passing on the torch to Kiumars Hamidian in September this year, reflected, “We have been able to execute our strategy with great success. However, for us, strategy execution not only means focusing on our own strategic choices, but it also means putting the strategies we develop for our clients into action. There is a high level of pressure on our clients to transform very quickly, and our strategic setup that combines business consulting, technology, and IP assets is built to allow for quick responses. We can advise on new business models and, at the same time, offer support all the way through to piloting and testing new technologies. This combination is critical in a market where it is not good enough just to put a strategy on paper.”
For more information on BearingPoint’s success in recent years:
– BearingPoint outpaces consulting market with 12% growth to €710 million.
– BearingPoint’s CEO Peter Mockler reflects on the firm’s bumper 2017 year.
* The Securities and Exchange Commission is an independent agency of the United States federal government which has responsibility for enforcing federal securities laws, proposing securities rules, and regulating the securities industry, the US stock and options exchanges, and other activities and organisations. As a result of these SEC rules and the Sarbanes-Oxley Act of 2002, accounting firms were forced to stop performing consulting work they did previously for their audit clients.