Allegro lines up directors for PwC spin-off Bell

PwC remains in talks with Allegro Funds about a sale of its government consulting unit, to be renamed Bell. Picture: Damian Shaw, NCA NewsWire

Private equity firm Allegro Funds is understood to be in the process of selecting non-executive directors and a chief executive for the PwC government consulting spin-off it is about to acquire and rename Bell.

The private equity firm agreed to buy PwC’s government consulting business at the weekend for $1, after the top four accounting firm admitted top staff in the unit leaked confidential information from government clients to its other corporate clients in the market about upcoming tax law changes.

It is understood that Allegro plans to structure the new entity with a model where partners will be offered an equity stake in the business, doing away with a partnership model.

But exactly what partners come across from the unit along with how many staff is understood to remain is in a state of flux.

Sources close to the deal say that the current focus is getting the governance structure in place.

Once the board is in place, Allegro would focus on appointing the chief executive.

It is understood that a term sheet exists for the transaction, but finer points of the deal continue to be negotiated, with expectations that the full terms of the sale will be known by the end of next month.

Launched in 2004, Allegro Funds has grown from initially managing distressed loans for private equity during the global financial crisis to having at least $4bn funds under management and being one of the most prolific deal-doers in the local market, with a focus on turnaround opportunities.

Founding partners are private equity executive Chester Moynihan and former Arthur Andersen senior manager Adrian Loader, and the firm is known for being a tough negotiator on transactions.

It is understood that there are 130 partners in the government consulting practice that could possibly move across to Bell, although those implicated in the tax scandal (the entire list of names is yet to be made public) would not join the new entity.

The number of overall staff that could transfer to Bell was expected to be about 1750 but could be as high as 2000, The Australian earlier reported.

The key challenge for Allegro will be determining what staff members are critical for the new business to succeed and arranging payment structures that still ensures the firm is profitable, based on future revenue forecasts.

Market participants were speculating on Thursday that a structure for the new business could be similar to that of Allegro’s recently acquired class action law firm Slater & Gordon.

It comes as DataRoom understands that PwC partners and staff elsewhere in the business are approaching rival firms about new job opportunities.

However, sources say that many right now are hesitant to make an immediate move as they await further information about the terms of their employment at PwC in the future.

It comes as 70 PwC partners retire as part of sweeping cost cuts to ensure the firm’s future viability in Australia.

This included partners taking early retirement amid a weaker economy.

Partners in the unit that is being acquired by Bell are believed to be taking legal advice on their payment entitlements from PwC Australia, with the understanding being that they would not receive any ongoing payments from PwC.

The unit generates 20 per cent of PwC Australia’s $3bn in annual revenue.

The Australian reported this week that as the firm faces a 20 per cent reduction in revenue in the year ahead, and more senior, higher income earnings partners would take a greater reduction in their income than junior partners.

Market observers said that PwC will likely need to clarify payment and partnership terms for Australian staff in the short term to stem the loss of top talent, particularly rainmakers.