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PricewaterhouseCoopers LLP Pays $378 Million Cash for Diamond Management & Technology Consultants

PricewaterhouseCoopers LLP Pays $378 Million Cash for Diamond Management & Technology Consultants

Susan Black,
24 August 2010

(blog) PricewaterhouseCoopers LLP (PwC) is plunking down $378 million in cold hard cash for Diamond Management & Technology Consultants, Inc. in another sign that the M&A market in the consulting business is heating up – see all our previous blogs on this, notably Booz-AT Kearney, Deloitte UK, Accenture and Capgemini being key newsmakers in recent months.

Diamond trades on the Nasdaq as DTPI had $210 million sales in the year ending March 31, 2010 and $12.3 million in net income, and $15.8 million in Earnings Before Interest and Taxes. So this is a good 24 times of transaction value on EBIT. With 2009 Depreciation and Amortization at $1.6 million, EBITDA is $17.4 million and so the transaction value divided by 2009 EBITDA is 21.7 times, a nice premium for DTPI shareholders.

The stock was trading at about $9.50 per share at the end of trading on Monday August 23, 2010 and zoomed 30% higher to $12.50 per share on the opening on Tuesday August 24, 2010 as PwC made the announcement after market closed on Monday August 23, 2010. This is a definitive merger agreement where PwC LLP acquire all of the outstanding common shares of Diamond for $12.50 per share in cash and values Diamond at $378 million. Diamond will join the PwC Advisory practice. The transaction, which has been unanimously approved by both companies’ boards, is expected to close in the fourth quarter of calendar year 2010, subject to customary closing conditions, including the approval of Diamond’s stockholders and antitrust clearance.

Adam Gutstein, President and CEO of Diamond, was obviously pleased, "This is an attractive all cash opportunity for our stockholders” etc. etc. and this is also Robert Moritz, US Chairman and Senior Partner of PricewaterhouseCoopers LLP first deal after taking over his new role, "We are pleased to bring to PwC a group of highly talented professionals with a proven track record of consistently delivering world class service.”

According to Yahoo Finance, 52% of DTPI is held by institutional investors, with
BlackRock Advisors, LLC holding 1,643,184 shares (6.00% of outstanding); RENAISSANCE TECHNOLOGIES, LLC holding 1,196,500 (4.37%); BlackRock Institutional Trust Company, N.A. holding 1,140,577 (4.16%); VANGUARD GROUP, INC. (THE) holding 1,044,613 (3.81%); and Fidelity holding 823,630 (3.01%).

Among individuals with the biggest share ownership are:
BERGSTEIN MELVYN 1,057,918 shares
GUTSTEIN ADAM J 523,205 shares
BUPP KARL E 434,619 shares

What does Diamond do? It was founded in 1994 and has 88 clients, 527 consultants and 116 operations employees; and provides management and technology consulting services. The company offers skills in strategy, information technology, operations, and program management. It provides managing technology and business transformation, information management strategies, and compliance and risk management services, as well as assesses various technologies for financial services industry.

We brought to attention earlier that KPMG was making a case that the Big Four do need to shore up their consulting services to match client needs, and return back to their erstwhile dominance in the business consulting space. This acquisition of a public company is probably the first of many to come where a large Big Four firm quickly and decisively acquires a general mid-sized consulting firm, incorporates it into its Advisory Services and expands the top line by offering such services to its audit client base. Classic Big Four strategy but notable in that PwC is willing to pay 30% premium in hard cash to prevent competing bids (see HP trumping Dell for 3PAR) and then jumping into the space with size much quicker than an organic ramp-up.

Watch out for more in this space quite shortly as Big Four acquisitions get more frequent and perhaps larger too.(blog)

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