Private Equity investor Allegro has moved way out along the risk curve by committing $100 million to rescue PwC’s government consultancy businesses out from the smouldering wreck of the professional services conglomerate.
It’s no surprise that Allegro co-founder Adrian Loader says, “when there is a fire we run towards it”, when describing how it identified PwC as an investment opportunity.
The nominal $1 price tag means nothing. The $100 million Allegro is investing to set up the business and pay staff employed by this PwC breakaway (called Scyne Advisory) is a big bet.
Establishing a business of this size doesn’t come cheap, particularly when it will employ thousands of high-earning professional staff. Thus, the runway even this investment allows isn’t long – while the smell of the PwC scandal and its taint on Scyne could be long-lingering.
To be sure, much attention has been paid to creating a product that looks attractive on paper.
It is a team of professional advisers with plenty of experience and expertise, all of which have been put through the probity sieve to ensure none of the detritus attached to any of the ethically rogue personnel at PwC is hanging on.
No matter how well packaged this advisory product is, its success depends on whether there are customers.
This new firm is billed as the industry’s cleanskin. And it has managed to snare a former Federal Court judge, Andrew Greenwood, as the face of board probity. Indeed, Greenwood approached Scyne to offer his services.
And most importantly, Scyne will have none of the inherent conflicts found within the PwC mothership – the one they are now attempting to flee in their escape pod.
But no matter how well-packaged this advisory product is, its success depends on whether there are customers, and the only ones Scyne can serve are state and federal governments and their various departments and agencies.
So Scyne is on the hunt for directors, or a chairman, with very deep government relationships; the type who has worn out the shoe leather or ground down the stilettos walking the corridors of Canberra.
But government leaders, from Prime Minister Anthony Albanese and Treasurer Jim Chalmers down, have expressed outrage over the past few months at PwC’s conduct and would see no political mileage in signing up advisory contracts with any professional services organisation that had previous links to PwC.
And Greens senator Barbara Pocock, who has led the PwC moral outrage charge, is sceptical about any company born out of PwC.
“I do worry about being embedded in an organisation where there’s been this moral and ethical collapse from the highest level which has seeped, no doubt, into the entire business in some way,” she told Sky News.
“I think we would have to be incredibly sceptical about a change of name, and whether that conveys a change of purpose, a change of practice and a change of culture.”
Such comments suggest that PwC remains kryptonite.
This may change over time, but given investigations are still under way by the federal police and PwC’s self-nominated inquisitor Ziggy Switkowski, the scandal will remain live for many months.
If the new National Anti-Corruption Commission accepts a referral to investigate PwC, the scandal will have an even longer tail.
The more immediate issue for Scyne is retaining the government contracts PwC already had. There is no guarantee that government departments or authorities will necessarily hire the Scyne team, despite their cleanskin bona fides.
And every private equity deal needs an exit plan, including this one.
Loader says this will involve creating a permanent capital solution that deals with attracting staff, retaining them and giving them a path to retire, and allows Allegro – as financial sponsor – an exit.
Under the corporate model that Scyne is using, senior partners of PwC who come across will be executives, they will have a shareholding, and will report to a chief executive and board.
Allegro has not ruled out the possibility that it could eventually exit its investment via a public listing, or the sale of its stake to an institutional investor such as a super fund.
But a lot needs to go right first.
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Source: Thanks smh.com