BearingPoint Breakup Imminent, Business Parts Sold to Multiple Buyers

BearingPoint is very likely to break apart very soon, and sell all its businesses to either other Big4 firms or to local management teams. According the company’s press release on March 23, 2009, all parts of BearingPoint have been sold / in the process of being sold / likely to be sold in different parts to different parties as below:

“BearingPoint and Deloitte have entered into an asset purchase agreement by which Deloitte will purchase a significant portion of BearingPoint’s largest business unit, Public Services, for a price of $350 million, subject to adjustment and customary closing conditions. “

“BearingPoint has signed a non-binding letter of intent to sell a substantial
portion of its North American Commercial Services business, including its Financial Services segment, to PricewaterhouseCoopers LLP for $25 million.”

“PwC Advisory Co., Ltd. (PwC Japan), a PricewaterhouseCoopers firm operating in Japan, is also in advanced negotiations to acquire the Company’s consulting practice in Japan.”

“BearingPoint is in late-stage negotiations with its local management teams to sell its
European and Latin America practices.”

“Further, BearingPoint is in separate negotiations with other parties and local management to sell various Asia Pacific practices, separate from Japan.”

While only the US part of BearingPoint was declared bankrupt with international organization remaining outside bankruptcy, it appears that a total sale of the company including domestic and foreign entities was the only feasible solution.

First, it appears that the big pieces of BearingPoint are “staying within the Big4 family” the key Public Services franchise and North American Commercial Services are being sold to Deloitte and PricewaterhouseCoopers.

Second, the total known sum of sales comes to $375 million plus the amount to be realized by sale of international businesses. The Public Services unit was strong and had good inroads into government consulting project, Deloitte will certainly strengthen its government consulting business. Consider that Public Services had revenues of $1.4 billion in 2007 and gross profits of $263 million, so the sale price is only 1.5X gross profit.

Third, the sum-of-parts valuation turned out to be clearly higher the than trading value of BearingPoint. On the day of announcement, March 23, 2009 late in the day though, the stock moved up to almost 20 cents a share, with market capitalization of 4.4 million shares * 0.2 = 0.8 million, prior to announcement, the stock was trading at 10 cents a share, and today March 25, 2009, it has come back to 9 cents a share.

As we said before, we mourn the passing of one of the Big4 firms, the KPMG Consulting spin-off, but given all the challenges faced by BearingPoint and the precipitous decline in share price and investor confidence, an internal breakup and sale were the only sensible solutions available at this time.