PwC to sell 1,750-strong government business for $1 to Allegro
Professional services firm PwC has agreed to sell off its embattled Australian government business – for the symbolic fee of just $1 in a bid to restore faith in the firm’s brand.
In a statement released on Sunday, PwC said that it has entered into an exclusive agreement with private equity firm Allegro Funds. Both PwC and Allegro Funds are aiming to agree on a binding agreement within a month.
If the deal (code-named ‘Bell’) closes, it would see PwC divest around 20% of its business, representing an annual fee income of A$600 million (of its A$3 billion total). “We have taken this step because it is the right thing to do for our public sector clients and to protect the jobs of the circa 1,750 talented people in our government business,” said PwC Australia Chair Justin Carroll.
PwC was not left with much other options. The firm has been caught up in one of the largest scandals ever seen in Australia’s professional services industry, after it was revealed that a former tax partner had internally shared confidential information received through his dealings with the federal government with other colleagues – enabling PwC to gain an edge in the marketplace.
Partners around the world, including in Australia, New Zealand, the Netherlands, and the United States, used the confidential information to provide companies with foresight in global tax regulations.
The Big Four firm initially tried to phoenix its way out of the scandal through a number of corporate governance pledges and by axing a number of high-profile executives (including then CEO Tom Seymour), but as more details emerged about the tax leaks, the firm saw its brand lambasted and business come under serious risk.
In the government sector, many departments and agencies had frozen the firm out of new work, while even in the private sector, a number of notable companies had called out that they would no longer use advisors from PwC.
A survey by think-tank The Australia Institute released last week found that the majority of Australians feel PwC should be banned permanently from any further government contracts in the future.
If the deal goes through, Allegro will intend to set up the new firm as a corporation, not a partnership, according to reporting by Reuters.
Allegro will however have to continue to deal with the fallout of the scandal, with the reputation of PwC’s government business decimated. Meanwhile, as the majority of staff are now “on the bench”, Allegro will have to rapidly find a way to restore profitability, stop the current exodus taking place, and repair morale.
For PwC, there may be no brighter home than Allegro. The Australian investment group specialises in “rebuilding great businesses” and has over the years bagged multiple awards for its achievements.
“This planned divestment will allow the firm to move forward with predictability and focus, and ensure stability for the rest of PwC’s clients in other parts of the business,” said Carroll.
