Eric Pelander, a partner inside the strategy-consulting firm Waterstone Management Group, spends most of his time advising on M&A deals. Part of his expertise stems from his role as a member of the small senior team inside IBM, which evaluated, planned and executed the acquisition and integration of PricewaterhouseCoopers Consulting. As consulting firms gear up for another wave of M&A, Consulting's One on One sat down with Pelander to better understand the lessons he learned from one of the largest, and most successful, acquisitions in the profession's history.
In the last edition we examined the keys to the success of the acquisition. Now, Pelander discusses the biggest challenges IBM had to overcome.
Consulting: What were some of the challenges to the integration?
Pelander: Partner compensation is always an issue. The PwC partners, as would have been the case in any partnership that has to convert into a corporate model, had to carve out earnings from what they would have previously taken home. Also, in a partnership, the partners can get deluded into thinking that I'm worth x amount of dollars —because that's been the average amount of their annual cash compensation. But the reality is that what they're taking home is a reflection of both their production as well as the earnings of the firm. In a corporate model, you have to carve out the earnings.
And the haircuts were significant for many partners, averaging about 10 percent for newly elected/junior partners to as much as 30 percent for the more senior partners. In exchange, they got options and shares in IBM and a promise, a year later, that a certain percentage of partners would get a second wave of stock. Fast forward 12 months and the problem was that everyone thinks they are above average. And that caused some cultural friction.
Consulting: What other challenges did you have to overcome?
Pelander: PwC was still dealing with some integration issues from the combination of Price Waterhouse and Coopers & Lybrand. In my opinion, Price Waterholes was the more well run firm with a more successful model. Coopers had some bright people, but it was not on the
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