Spending Spree: Consultants Buy Into E-Business

That is what large consultant firms are doing to to accelerate incursions into E-business. Although U.S. Securities and Exchange Commission rules governing their historical practices in tax and auditing services are coloring the nature of these agreements, limiting certain equity investments, that is not slowing the deal-making.

Deloitte & Touche LLP's Management Solutions and Services practice, San Francisco, made an equity stake in Brilliant Media, a San Francisco Web design firm, said Steve Riordan, national director of E-business consulting services for emerging strategic clients for the Deloitte & Touche practice. Riordan is a principal for Deloitte Consulting's E-business initiative. Deloitte & Touche also has an equity stake in US Interactive Inc. and is mulling similar deals with other Internet-focused service companies, he said.

"These are not really alliances anymore," said Riordan. "We want a handful of trusted people that we can have more than a handshake agreement with. This is about control and about speed."

Deloitte & Touche's equity stakes in Brilliant Media and US Interactive include provisions that allow those two firms to work exclusively with Deloitte & Touche and not with any of its traditional competitors, Riordan said.

"We've been able to accomplish what we want in our alliances without buying our partners outright. We have just enough to get exclusivity. The Big Five are notorious for crushing the life out of a great innovative concept, and we're sensitive enough not to crush life out of leading-edge innovators," Riordan said.

"The partnership with Deloitte is interesting because it's the only one we're aware of where a Big Five traditional management consulting company has partnered with the new breed of Internet professional services firm," said Michael Carter, vice president of corporate marketing for US Interactive, King of Prussia, Pa.

The fact that Deloitte & Touche audits clients as part of its business impacts the firm's plans to take equity stakes in some companies, Riordan said. "We have to do something about independence [from the auditing arm], but it's not going to be a knee-jerk reaction."

Meanwhile, New York-based Ernst & Young LLP said last week it was in discussions with Cap Gemini S.A., London, over a possible merger of its global consulting businesses. Ernst & Young Chairman and Chief Executive Philip Laskawy said in a statement the talks were driven by the impact of E-business and the Internet on professional services.

KPMG Consulting, for its part, is leveraging an alliance with Cisco Systems Inc., San Jose, Calif., to foster growth in its network integration business, a strategic complement to its E-business thrust. KPMG International in August said it planned to sell approximately 20 percent of Mountain View, Calif.-based KPMG Consulting to Cisco.

"Cisco is our premier strategic alliance and the crown jewel of our alliances overall," said Michael Herzog, KPMG Consulting partner in charge of E-business integration.

KPMG last month invested in and formed a strategic alliance with Web Methods Inc., a Fairfax, Va., integration company that provides an XML platform for business-to-business applications.

"There are a lot of companies that we are working with on a tactical basis and the question is to focus your energies on the premier alliances," Herzog said. "The equity stakes cement our common interests."

However, KPMG also will pursue strategic alliances that do not call for it to take equity stakes in its partners, Herzog said. "If it's an audit client or if it's some other independence-related issue, we just won't be able to do that. Our intent is to find the optimal synergy between the broader-based KPMG community, the audit tax firm and the consultant organization. We have an idea of what we'd like to do. The SEC has to rule on what they think is acceptable," he said.

DAVID JASTROW contributed to this story.

For more on E-business integration: www.crn.com/thisweek