KPMG Offering Could Be Largest Tech Services IPO in History

Article excerpt

NEW YORK (NYT) -- In the busy market for initial public offerings -- especially for volatile Internet-related companies -- analysts tend to be wary, which makes their enthusiasm for a planned $2.83 billion stock sale announced last week by KPMG Consulting all the more remarkable.

Through an alliance with Cisco Systems, which invested $1 billion in KPMG Consulting a year ago, the consulting group has specialized in what it calls "e-business services" to a client list that includes blue-chip companies, the Pentagon, the State Department and Yale University.

"It will be the largest technology services IPO in history," said Karl Keirstead, vice president for equity research at Lehman Brothers. "I think Wall Street will find it quite attractive," he added, in comparison with its competition. Two other big information- technology services companies, Electronic Data Services and Computer Science, "have been going through tough transitions," he said.

"I think KPMG will be the first of the Big Five accounting firms" to sell part of its consulting business to the public, said Moshe Katri, managing director at SG Cowen Securities, who follows Sapient, a KPMG competitor. "We expect the others to follow."

Indeed, federal regulators are hammering out tough new limits on accounting firms' ability to perform lucrative consulting work for their audit clients. Last week, an arbitrator separated Andersen Consulting from Arthur Andersen, the tax and auditing firm. Earlier this year, Ernst & Young sold its consulting unit to Cap Gemini for roughly $11 billion, and PricewaterhouseCoopers is considering divesting itself of its consulting unit by year-end.

In January, KPMG LLP incorporated its consulting unit as a separate entity, 80.1 percent owned by KPMG and its partners and 19.9 percent by Cisco. KPMG Consulting announced plans in May for a $1 billion initial public offering, but in an amended prospectus filed last week with the Securities and Exchange Commission, it raised the offering to 324.2 million shares to be priced at $6.75 to $8.75 each. Morgan Stanley Dean Witter is to be the underwriter. …