To list or not to list, that is the question

With press reports suggesting they could soon be worth $10 million (€11.1 million) each, partners at Andersen Consulting could be forgiven if they are finding it difficult to focus on their latest information technology projects.

The ruling by an international arbitrator that Andersen Consulting can separate from Arthur Andersen, the accountants, on lenient terms clears the way for the consultants to list their business. The court of arbitration at the Paris-based International Chamber of Commerce said Andersen Consulting would have to change its name but did not have to pay a cent of the $14.5 billion (€1.6 billion) damages Arthur Andersen demanded.

Andersen Consulting is not alone in thinking of listing. The consulting arm of KPMG has applied to the US Securities and Exchange Commission for the right to list, which is expected to value the firm at up to $5.6 billion. PwC is considering the possibility for its consulting business.

Ernst & Young has sold its consulting business to Cap Gemini, which is quoted on the Paris stock exchange.

Management consultancy has long been a well-paid profession. Now some of its practitioners believe they have the opportunity to match the riches of their clients in the software and Internet industries.

Public listings would also allow them to hold on to staff attracted by share options at dotcom companies and to use their equity to make acquisitions. Consultants took note when Goldman Sachs, the US investment bank, listed last year - and began wondering whether they should too.

The SEC has quickened the process by insisting that accountants remain independent of the companies they audit. It has banned auditors from holding shares in clients or even in their alliance partners. This has worried consultants that are part of accounting firms because they increasingly want to take equity in clients in lieu of fees.

But there are many in the profession who warn it is a mistake for consultants to list. Mr Jon Moynihan, chairman of PA Consulting, the UK-based firm, says plans by the partners to list almost brought the partnership to its knees in the early 1990s. He argues that in a highly competitive employment market, consultants need their cash to pay staff and do not have the money to fund shareholders' dividends too.

Mr Joe Nemec, a veteran New York-based consultant with Booz Allen & Hamilton, which endured a disastrous period as a publicly-listed company in the 1970s, says: "In our experience, public ownership of a professional services firm did not work."

Listed consultancies lose the camaraderie of a partnership, the critics of IPOs argue. Consultancy revenues are volatile and firms are vulnerable to defections by staff, their only significant asset.

Investors and analysts find it difficult to understand the consulting business. Most firms' order books contain little more than six months' work. Consultants say that, under the pressure of the Internet, projects are getting even shorter, with clients demanding results within weeks rather than months.

Although the consultancy business is growing strongly worldwide, listed firms might find it difficult to show the steady increase in revenues and profits that the markets demand.

There are few listed consultancies and most are in the information technology and Internet sectors. Even the most prominent of these, such as Scient and Viant, the US-based e-commerce consultants, have seen their shares fall in recent months, along with those of other Internet-based businesses.

The UK-based Proudfoot Consulting, one of the few listed general management consultancies, is a lesson in what can go wrong. Proudfoot has endured a decade of disastrous acquisitions and several years of poor financial performance.

Under Mr Kevin Parry, a new chief executive recruited from KPMG, Proudfoot's shares closed last week at 54p from their low of 12p in November. But this compares with £4 in the early 1990s. As a listed company, Mr Parry says, "you're permanently in the public eye and, if the company's going wrong, it's a matter of public record."

None of these lessons have been lost on Andersen Consulting, which insists that while listing is an option, it has not yet made any decisions. "We'd be daft if we hadn't thought about the post-arbitration options, but it's too early to say," says Mr Vernon Ellis, the firm's international chairman.

"One option is to stay as we are. The partners have enjoyed being in a partnership. In many ways, it fits the style of the business."

Mr Ellis says Andersen Consulting does not need to raise large amounts of capital. "We've no burning need for it. We've got good cash flow and our borrowings are quite light. We can borrow money if we need to," he says.

But rival consultants are convinced Andersen Consulting will list. They believe the Andersen partners will not be able to resist the resulting riches.

KPMG is pressing ahead with plans to list, although it promises to be a complex process. The KPMG accountants would retain a 20 per cent stake in the consultancy after the initial public offering but would have to sell their share within five years.

KPMG consultancy plans to list its consulting business in the Americas, Japan and Israel, which would then negotiate to acquire the European practices. It argues a quotation is essential if it is to attract the best people.

"When people we are trying to recruit say: `What options am I going to get?', we have to say: `Nothing'. People want some potential capital growth," says Mr Eddie Oliver, chairman of KPMG's UK consulting practice.

Mr Oliver also rejects the argument that partners who take their firms public are cashing in at the expense of retired consultants who built up the business. The retired consultants benefited from cash rewards and profit sharing, he argues. Consultants in listed companies will receive more of their remuneration in shares and dividends and less in cash.

It is odd for consultants to argue that it is wrong to go public when they spend so much time preparing clients for a listing, Mr Oliver argues.

"This is not a foreign country to us," he says. "Having spent years advising others how to do it, we now have to see whether we can do it ourselves."