The 45 partners at KPMG Consulting organised their own version of the Lotto last week with the flotation of its consulting arm.
The 42 men and three women shared around £30 million (€38 million) when the company began trading on the US Nasdaq market. But unlike many Lotto winners, you get the impression the serious types at KPMG will not be going mad and it's very much business as usual.
Mr John Condon (47) was a key player in forging the deal that ensured the Irish consultancy arm was part of the group to get a Nasdaq listing. The Irish consultancy now forms part of a global organisation employing more than 9,000 staff and with 2,500 high-profile clients. It will trade as a separate entity from KPMG's accountancy and auditing firm, employing up to 150 people.
Mr Condon said recent events will mean a cultural change as employees get used to working for a publicly quoted company instead of a private partnership. It will mean filing quarterly profit updates to the US Securities Exchange Commission (SEC) but it also allows the firm to offer share options to all employees - something that will help to attract and retain high-calibre staff.
Mr Condon and his colleagues must have sighed with relief to get the flotation away. Just a few months ago, a successful flotation was far from certain as market jitters postponed an earlier flotation. But on February 8th it all went according to plan.
The shares traded at a premium, rising from $18 (€19.40) to more than $23 on the first day, valuing KPMG Consulting at more than $2.6 billion.
The Irish firm was the only non-US part of the global group to join in the flotation. Mr Condon says this is partly because other consultancies may not have felt the timing was right.
But there was no such deliberations at KPMG's headquarters off St Stephen's Green. Managing partner Mr Jerome Kennedy seized on the opportunity to become part of a Nasdaq company when their US colleagues decided to take this route, the first of the Big Five accountancy groups to do so.
Across the industry, consulting practices are being spun off from the parent firm. Almost every firm has invested in the information technology and management consulting divisions, which are more lucrative in terms of fees than bread-and-butter work such as auditing. Given the potential earnings from this type of work - projects in the Republic can cost anything from £250,000 to more than £1 million - there were concerns about how this might affect the independence of an auditor. If the auditor were to find something untoward in the accounts, would they be tempted to turn a blind eye to retain their client?
The SEC finally issued new rules to curtail the amount of consulting that accounting firms can provide to their audit clients, which prompted the spin-off. "Pressure for change was becoming fairly relentless from the SEC, and our own colleagues in the US decided that they would hive off the consulting part of the business and float it," Mr Condon explains.
"We were looking at our options in Ireland. We could either wait until regulatory conditions forced us to do that or grasp the opportunity and do something straight away."
Other Big Five firms had already begun to shed their consulting arms. At Arthur Andersen, the wrench proved very traumatic and resulted in an acrimonious break that established Accenture. Ernst & Young sold its practice to Cap Gemini and PricewaterhouseCoopers held talks with PC manufacturers Hewlett-Packard. These firms technically comply with the SEC rules once they are economically independent from the auditing firm. In KPMG Consulting's case, it is still housed in the same complex as its former parent, and staff from the two companies breeze in and out of the various buildings without distinction.
Mr Condon points out that there is now no financial incentive for an audit partner in KPMG to divert work to the consultancy. "I would hope that they would send it our way nonetheless."
KPMG Consulting is understood to have generated fee income of around £20 million last year. The business has grown rapidly in a booming economy, although some US commentators are less than optimistic about the strength of the business that now trades on Nasdaq.
The Wall Street Journal was among those who suggested it wasn't a positive signal for investors to see the major shareholders - KPMG and Cisco - selling out. The sale of 74 per cent of KPMG Consulting is structured to ensure that Cisco gets back what it put into the business, it says.
Of the $469 million KPMG Consulting will take in from its share offering, $400 million will be used to repurchase Cisco's preferred stock, while the remaining $69 million will go to repay debt obligations to its parent. Analysts believe the problem with the structure's offering is that it fails to account for the deteriorating value of consulting companies.
The five-year joint venture with Cisco has been very beneficial to the consultancy, with Cisco training KPMG consultants and providing them with software and hardware at substantial discounts. Postflotation, Cisco will retain a 9.9 per cent shareholding in KPMG Consulting, while the firm's consultants hold around 16 per cent.
Mr Condon points out that the firm's consultants are precluded from cashing in as they can only sell shares at various times over the next five years so it's not as simple as winning the Lotto.
