European services provider Cap Gemini is to buy the consulting arm of Big Five accounting firm Ernst & Young in a bid to substantially increase its competitiveness in the e-commerce consulting market and position itself as one of the five largest consultancies in the world.
Cap Gemini recently announced that it has offered to pay 375 million euros and issue up to 43.5 million shares of stock - or about $18 billion ($US11 billion) - to purchase the consulting arm of Ernst & Young.
Cap Gemini will begin by acquiring the Ernst & Young Consulting businesses in the US, Canada, UK, Germany, France, Spain and Italy, subject to a vote by the partners in the Ernst & Young businesses. Subsidiaries in Sweden, Norway, Finland, Denmark, The Netherlands, Belgium, Australia and New Zealand are expected to join the deal in following weeks.
Combining the two groups' consulting activities would enable Cap Gemini to become a major player in the US, with the region now representing over one third of its revenues. It will also help it to compete in the e-commerce consulting market, which one analyst firm expects to total $US8.3 billion this year.
If the acquisition is completed, Cap Gemini could use the Ernst & Young brand name for four years, the companies said.
The acquisition would provide Cap Gemini with expertise in strategic consulting, which is Ernst & Young's strength, according to Julie Giera, a senior analyst at US-based research firm Giga Information Group.
Cap Gemini consultants, on the other hand, have more technical experience in areas such as systems integration, coding and Web site development, she said.
According to published reports, the Securities and Exchange Commission has been putting pressure on the Big Five accounting firms to operate their consulting and auditing practices independently in order to avoid conflicts of interest.
Dale Wartluft, a senior vice president at Ernst & Young Consulting, said that because of that pressure, he is confident that regulators will approve the acquisition.