PwC restructuring unit now in focus for M&A

Other units of PwC Australia are in focus following the sale of its government consulting unit to Allegro Funds. Picture: Damian Shaw, NCA NewsWire

Executives in other departments of PwC Australia are believed to be weighing their options when it comes to mergers and acquisition opportunities following the purchase of its government consulting business by Allegro Funds for $1.

Sources say that next unit to break away from PwC could be its Australian restructuring operation, the business it inherited following an acquisition of the Australian insolvency specialist PPB in 2018.

Overseas, major accounting firms have all recently offloaded their restructuring advice operations.

In 2002, FTI Consulting purchased the Business Recovery Services unit of PwC in the United States, which PwC said was the leading provider of bankruptcy, turnaround and business restructuring services (BRS) to corporations in the United States at the time.

DataRoom understands that FTI and PwC held talks about five years ago regarding the former buying the latter’s BRS unit in the United Kingdom, and that the talks were advanced.

A deal didn’t eventuate, but some partners jumped ship to FTI.

KPMG sold its restructuring unit in the United Kingdom to Interpath in 2021 for more than £350m amid pressure on the big four auditors to eliminate potential conflicts of interest in the wake of a series of accounting scandals across the profession.

Teneo, backed by CVC Capital Partners, purchased Deloitte’s restructuring operations in the same year.

While PwC does not have the band width right now to contemplate another unit sale, sources said they believe more change is coming and that in restructuring there were mergers and acquisition (M&A) talks.

Private equity firm Kroll, which owns US-based consultancy firm Duff & Phelps and the Asian-based Borrelli Walsh restructuring firm, has expanded into Australia, as has Ankura consulting group, and both are likely to take up the opportunity to strengthen their operations through the PwC scandal surrounding leaks of confidential information on government tax changes it had been working on to other clients.

The US-based Ankura entered the Australian restructuring market in 2019.

It is understood partners are yet to understand whether PwC is open to a sale, but expectations are that discussions are happening anyway about potential acquisition opportunities at the partner level.

During the global pandemic, about 20 per cent of PwC’s restructuring work came from the government, which is now likely to dry up.

FTI has strengthened its Australian ranks in recent years, with ex-PPB operatives Chris Hill and David McGrath forming part of its Sydney team, along with former Deloitte operative Vaughan Strawbridge.

There have been suggestions it may hire PwC staff for its Melbourne office.

It is understood that a number of PwC staff keen to resign, who would normally need to offer six months’ notice, have been given the chance to depart before June 30.

But PwC’s lucrative pension scheme for partners remains a major sticking point and would give them a lot to think about before opting to leave.

Those joining the Allegro shop are likely to be giving up their partner retirement payment arrangements from PwC, where the top four accounting firm paid them out retirement entitlements.

Allegro will hold the majority stake of the business.

No doubt there will be some partners joining now considering their legal options.

There have been suggestions that the US arm of PwC has provided some urgent financial support to the Australian firm, which is liable to pay the pensions of retired partners.

Now the job for PwC International is to clean out the Australian PwC partnership and bring a rapid change in the culture of the Australian firm, which is said to already be underway.

Sources say that Allegro will likely look to float or sell PwC’s government consulting unit in the years ahead, but may opt to create a structure for the business where staff are offered a fixed salary and dividends in a similar way to FTI, rather than partnerships, in order to create cleaner exit options.

The under bidder was BGH, but PwC has worked closely with Allegro before and is seen as flexible and good to work with from a seller’s perspective.