Management and IT consulting services provider BearingPoint recently released third-quarter earnings that showed an operating profit for the third consecutive quarter, despite ongoing revenue drop. However, it has so far failed to find itself a buyer, due in part to the global economic meltdown that has had a substantial impact on M&A; activity.
BearingPoint’s future is among the most talked-about subjects in the current IT services market, and some wonder whether it can shore up its finances and attract the right buyer in the next few months. Meanwhile, despite its precarious financial situation, the firm continues to bring in new business, especially to its public-sector unit.
Some of BearingPoint’s recent troubles are the result of unfortunate timing. At the beginning of this year, after years of financial problems, the firm was finally up to date with its SEC filings and announced Ed Harbach’s promotion from COO to CEO. Harbach put the firm on an aggressive growth strategy, pledging to expand its global footprint, and invest in retaining and training its employee base. Just as it was gaining some momentum in its public, commercial, and financial services businesses, the global economy went into meltdown.
Now as the year draws to a close, BearingPoint’s stock price hovers under 10 cents, and attempts to sell off parts or all of the company have so far proven fruitless. The firm did not hold a quarterly earnings call with analysts, and has withdrawn all guidance for the year, saying that it can no longer confidently assess the near-term impact of the current economic environment. And with its efforts to sell the business at what appears to be a standstill, it is looking to restructure its debt and continues to improve its financials.
Stock price and financial issues notwithstanding, there is plenty of value in BearingPoint’s business, especially its long-time and respected public-sector unit that works with state and US federal agencies. For example, in the last quarter it won business with the US Air Force and US Marine Corps, as well as the federal General Services Administration. It also has a strong base of SOA and IT security and compliance skills.
Who would be the best suited to buy BearingPoint? There are plenty of ideas to go around, although BearingPoint for obvious reasons is quiet on the subject, other than to acknowledge it has been looking at potential suitors.
Global competitors such as IBM, HP-EDS, CSC, or Accenture are unlikely to have an interest. They have strong public-sector businesses already and the potential negatives of acquiring BearingPoint’s business might outweigh the positives. It might be easier for some firms that specialise in the public sector (such as SAIC) to absorb the business.
A systems, storage or software vendor looking for a stronger portfolio of higher-value consulting and more services (think Dell or EMC) might make a better fit despite some inherent cultural challenges, and would immediately give such a vendor a strong public-sector business.
And India-based outsourcers, some of whom are looking to expand their consulting capabilities, might make interesting suitors for BearingPoint, although there are potential cultural and political considerations. However, until the global financial and M&A; picture improves, there might be little interest or ability to execute such a deal.
As for its recent earnings announcement, Harbach and his team continued to make progress. Operating income increased to $4,6m compared to an operating loss of $27,7m a year ago, the firm’s third consecutive quarterly operating profit. The company cut its overall SG&A; expense by more than 12%, raised its utilisation rate, and reduced its billable headcount to 13 100 from 14 500 compared to a year ago. It also announced that it has appointed Kenneth Hiltz as chief financial officer, its tenth CFO in nine years. Hiltz is a managing director at AlixPartners, a financial advisory firm hired by BearingPoint in October.