Outsourcing boom lifts firms' flotation prospects
City analysts believe that more consulting firms are planning to merge or seek stock market listings as IT outsourcing contracts come to dominate the market for consulting services.
Market interest has been stirred in recent weeks after the successful flotation of EDS, formerly part of General Motors, on the New York and London stock exchanges.
“You can see by the way the top 10 outsourcing players have increased their market share that this business is only going to work for large, well-funded organisations,” said one analyst. “Outsourcing means that consultancies now have to behave like normal corporations,” he added.
In February, Andersen Consulting announced a joint venture with GE Capital to provide financing for outsourcing contracts, which usually involve a wholesale transfer of staff.
An Andersen Consulting float would allow investors to benefit from its profitable long-term outsourcing contracts and integrated consulting arrangements, and provide a source of capital that the company could control. “I think the market would really appreciate the logic of it,” says Richard Holway, an independent software and IT services industry analyst.
In September, the Andersen Worldwide partners will vote on a number of strategic options to grow the business. It is understood that a full flotation on the New York and London stock markets is one option. If they decide against a flotation, market attention would shift to PA Consulting, the privately held management and IT consultancy. Its revenues for the year to December 1995 were #181m. Analysts believe PA could raise up to #230m through a full flotation, if it sold itself as an IT consultancy looking for capital to get into outsourcing.
