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Cisco to sink $1 billion into KPMG

Cisco's more than $1 billion investment in KPMG's consulting business "reaffirms" the consulting firm's intention to pursue an IPO.

Cisco Systems today said it plans to invest more than $1 billion in KPMG's consulting business to expand Internet services focused on the telecommunications and enterprise markets.

As part of the deal, computer networker Cisco said it will help build KPMG's revenue growth through business leads from its 6,000 person sales team. In turn, closely-held KPMG will add 4,000 consultants to serve the systems integration needs of Cisco's customers.

Both companies have signed a letter of intent, and New York-based KPMG said its board has voted to approve the investment.

Computer services and consulting firm KPMG, which has been talking about publicly spinning off a portion of its consulting business in the past year, said that this deal with Cisco has "reaffirmed" its intention to pursue that IPO goal.

"All private services firms are looking for ways to either align, partner, or even acquire a company with an IT background to help them expand their consulting business," said industry analyst Tom Rodenhauser of Consulting Information Services.

"This Cisco deal may preclude them [KPMG] going public," said Rodenhauser. He added that the firm has been exploring a "public route" and looking for new sources of capital because it has been looking for ways to better compete "head to head" with "dot com" companies. One of the solutions to attracting and retaining employees, he said, would be by offering stock options.

Under today's agreement, KPMG said it plans to build six Internet service centers, work with personnel in Cisco sales offices, and provide additional support to Cisco's existing customers. KPMG's consulting unit will focus on supporting customers in the telecommunications and enterprise markets, both companies said in a statement.

In addition, KPMG said its board of directors has "unanimously reinforced" the firm's commitment to a consulting IPO as soon as the Independence Standards Board (ISB) issues its rules on the transaction, which the firm expects to be resolved by approximately the spring of 2000.

San Jose, California-based Cisco said the two companies expect to finalize and close the deal next month. KPMG said it will incorporate its consulting practice as "KPMG Consulting," and Cisco will be represented on KPMG Consulting's board of directors upon approval of the transaction by the firm's partners.

In April, KPMG became part of a network that Cisco formed to make it easy for small and medium-sized businesses to take advantage of network and Internet connections. KPMG was among more than 20 companies in the network, including Microsoft and Hewlett-Packard.

Last week, KPMG joined hands with Cisco once again when Cisco made another push to target small and medium-sized companies in the market for network equipment. As reported, KPMG was included in the network of systems companies and integrators in an effort to target businesses with 100 to 500 employees in order to create and sell tailored combinations of technology for particular business needs.