PwC sells £355 million valued public sector consulting arm to Veritas Capital

27 March 2018

Big Four professional services firm PwC has sold its US public sector consulting business to Veritas Capital. The private equity firm snapped up the governmental consulting wing for an undisclosed fee, as PwC seeks to pursue growth in its governmental auditing business without fear of conflicting interests.

PwC’s public sector government consulting business provides consultancy services across many US government agencies including the Department of Defense (DoD), Homeland Security and Veteran Affairs, as well as local governments. The wing currently has about 1,500 in staff and generated nearly £321 million ($451 million) in revenue in 2016, while the unit’s pretax earnings were expected to rise to more than £49 million ($60 million) in 2018 from about £35 million ($50 million).

In spite of this bullish performance, PwC had reportedly been exploring the sale of its government consulting practice since November 2017, with sources close to the firm expecting it to fetch around £355 million ($500 million). This is because the Big Four giants were said to be keen to offload the governmental consulting arm to gain a freer hand in pursuing the growing business of auditing government agencies. Professional standards restrict the kind of consulting services audit companies can offer to government customers, which are deterred by even the appearance of conflicts.

PwC sells £355 million valued public sector consulting arm

Now, PwC  has confirmed the sale of its public sector consulting business to private-equity fund Veritas Capital, for an undisclosed fee. Following the deal, the consultancy business will maintain its current leadership – Scott McIntyre, president and CEO of PwC’s Public Sector will lead it – and operate as a stand-alone company. Morgan Stanley advised PwC on the deal, while Davis Polk & Wardwell served as legal counsel. Schulte Roth & Zabel provided legal counsel to Veritas Capital.

The move will allow PwC to invest in other areas. To this end, the deal provides PwC with a major opportunity to add to its auditing portfolio right off the bat. During the period of negotiations, the Pentagon announced that it would run the first ever agency wide audit of the DoD and its £1.7 trillion ($2.4 trillion) in assets.

PwC US Chairperson and Senior Partner Tim Ryan, said of the sale, “Our U.S. Public Sector business has an excellent brand and client base with a strong record of growth, and this transaction will provide the partners and staff with an opportunity for continued development for both their business and careers. Furthermore, today’s announcement enables our US firm the opportunity for continued growth and investment to best provide ongoing quality and value to our clients.”

Meanwhile, Veritas is planning on expanding the business further. Veritas Capital CEO and managing partner Ramzi Musallam commented, “We look forward to partnering with the management team and assisting with our government sector expertise to continue delivering value to the clients and embark on the next stage of expansion.”

Elsewhere, PwC expanded its auditing offering, by way of a new blockchain platform. PwC partnered global asset management company Northern Trust to launch the new blockchain-based auditing system which will enable audit firms to access fund data stored on a private equity blockchain, in order to audit specific events in real time.


Private equity firms ramp up sustainability focus

19 April 2019

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.