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KPMG Consulting gets a boost in IPO debut

Braving rough financial markets in its long-awaited Nasdaq debut, KPMG Consulting watches its shares jump more than 30 percent after opening modestly above the target price.

    Braving rough financial markets in its long-awaited Nasdaq debut, KPMG Consulting on Thursday saw its shares jump more than 30 percent after opening modestly above the target price.

    KPMG shares closed at $23.47 on volume of about 89 million shares. The company, which began trading under the ticker symbol "KCIN" sometime before 1 p.m. EST, opened at $20.

    The McLean, Va.-based consulting company late Wednesday priced its shares at $18 per share, coming in at the high end of its previously projected range. KPMG Consulting is offering 112,482,000 shares, aiming to raise roughly $2 billion, according to lead underwriter Morgan Stanley Dean Witter.

    "The fact that this is the biggest IPO since the AT&T Wireless deal, (means) investors are salivating and looking for a (positive) IPO vehicle," said Richard Peterson, an IPO analyst with Securities Data Corp. KPMG?s IPO "is the most attractive in months. It?ll have a positive close at the end of the day."

    Of the total shares offered, 31,826,583 shares were offered by KPMG Consulting and 80,655,417 shares were offered by KPMG LLP, the company?s accounting parent.

    Analysts had been anticipating a respectable, though not stellar, performance. "It should do okay but it won?t skyrocket," said Tom Rodenhauser, an analyst who heads Consulting Information Services. "It should be a solid performer."

    A major challenge for KPMG as a publicly traded company will be to withstand Wall Street scrutiny, said Peterson.

    "Their books are now open, open to the world to see the rewards of their success and the swings of failure," he said, adding that the jury is still out on whether KPMG will automatically be thrown in the pool with other Internet consulting companies that have recently been performing poorly.


    Meta Group says that as KPMG (and other "Big Five" systems integrators) go public, they will need to dramatically change their business practices.

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    "In the short term, KPMG will probably trade with a positive bias," said Peterson. "In the next 30 days or so, when analysts begin issuing reports, we?ll get a signal of what the direction will be for the company."

    The long-awaited public offering, which KPMG Consulting filed for last May, comes at a time when the market for tech-related IPOs have soured, and when most companies in the consulting services sector have been hit by a sudden market downturn, primarily caused by the slowdown in spending by dot-com clientele for Internet-related consulting services.

    When KPMG Consulting first announced its intentions to go public, market valuations had been soaring for so-called Internet consulting companies that were enjoying success with a Web-based consulting focus. The trend prompted many traditional consulting houses to shift their focus from traditional systems integration and strategy work to assisting companies with Web development and building Internet strategies.

    But now, it?s a whole new game. Once high-flying publicly traded consulting companies, players such as Scient, iXL Enterprises, Razorfish, MarchFirst, Viant and others have been suffering through the shift to focus on larger, traditional and more lucrative consulting engagements while also faced with negative news of waning stock prices and work force reductions.

    Still, Dean McMann, who heads Ransford, a research firm that tracks the professional services industry, said KPMG?s IPO performance could set the stage for other competitors eyeing the public route.

    "If the market has the appetite for (KPMG?s IPO), we?ll see other firms like PwC and Accenture line up over the next 12 months," said McMann. "This is very watched and one of the most important events in the professional services industry."

    Over the past few years, KPMG Consulting and other so-called Big Five management-consulting firms have also had to deal with plans to split from their auditing sides to resolve conflicts of interest concerns. The Securities and Exchange Commission for some time has said that a privately held auditing firm should not provide business consulting to its clients, a big driver for KPMG Consulting?s move toward an IPO.

    Rival Accenture (formerly Andersen Consulting) last summer officially separated from accounting parent Arthur Andersen. Ernst & Young sold its consulting unit to professional services firm Cap Gemini. Deloitte & Touche is considering its options, as is PricewaterhouseCoopers after a failed attempt at an acquisition by Hewlett-Packard.

    Amid today?s weakened market, KPMG Consulting twice lowered the number of shares it would sell in its offering. Last month, it increased its projected price range to between $16 and $18 per share but drastically lowered the number of shares it would offer from 354.6 million shares to 112 million shares. Last December, KPMG Consulting said it would aim to sell 354.6 million shares instead of the 367.1 million shares it had previously projected.

    In its latest filing with the Securities and Exchange Commission, KPMG Consulting said it expects to use approximately $383.1 million of the proceeds from its IPO to repurchase stock from Cisco Systems, which invested $1 billion in KPMG Consulting in 1999. Approximately $119 million of the proceeds will help repay outstanding debt to parent company KPMG LLP.

    Morgan Stanley Dean Witter is managing the offering with co-underwriters Goldman, Sachs, JP Morgan, and Merrill Lynch. KPMG Consulting and KPMG LLP have granted the underwriters the right to purchase as many as 16,872,300 additional shares to cover over-allotments.