NEW YORK (CNNfn) - The world's biggest consulting firm, Accenture Ltd., will attempt to launch its long-awaited initial public offering this week.
So far, the IPO market has floated only one new issue this quarter that garnered strong results. Wright Medical Group (WMGI: Research, Estimates), a orthopedic company, shot up 25 percent last Friday, after it raised nearly $94 million.
The offering was the first in two weeks, and its success provides evidence that new issues are not dead, said David Menlow, president of IPOfinancial.com.
"Wright Medical served to reinforce the fact that IPOs are still a viable platform," he said.
But the quarter's first big test will come from Accenture, which provides management and technology consulting to customers such as Allianz AG (AG: Research, Estimates), J.P. Morgan Chase & Co. (JPM: Research, Estimates), Ford Motor Co. (F: Research, Estimates), and Johnson & Johnson (JNJ: Research, Estimates) .
The Big Five connection
First filed in April, the Accenture IPO could potentially raise $1.7 billion, ranking it among the biggest new issues this year, behind the $8.7 billion offering from Kraft Foods Inc. and the $3.6 billion IPO from Agere Systems Inc.
The firm, formerly known as Andersen Consulting, won its freedom from parent firm Andersen Worldwide last August. The firm had been involved in a bitter dispute over being forced to share its profit with sister firm Arthur Andersen, the global accounting firm, which is part of the Big Five. Other Big Five members include Deloitte & Touche, Ernst & Young, PricewaterhouseCoopers, and KPMG.
Andersen Consulting changed its name to Accenture on Jan. 1 as a result of its split with Andersen Worldwide.
Accenture is the latest former unit of the Big Five to go public. KPMG Consulting, a former division of KPMG, went public in February. PricewaterhouseCoopers has also said it is eyeing either a sale or IPO spinoff of its consulting unit.
Accenture, with headquarters in both Bermuda and Palo Alto, Calif., has more than 75,000 employees and hired 17,000 new employees in 2000. However, the consulting firm cut about 1,400 jobs, or 2 percent of its work force, in June.
Accenture partners are not selling shares in the IPO and will hold 82 percent of the company's voting power once the offering is completed.
Accenture is immensely profitable, posting $1.5 billion in operating income on $10.1 billion in revenue for the nine-month period ending May 31.
But the former Andersen Consulting is showing signs of weakness in a declining information technology sector. Accenture warned and said it was seeing evidence of an economic downturn in some markets "including a reduction in capital expenditures and technology and associated discretionary spending by our clients, particularly in the U.S.," the company said in a filing with the Securities and Exchange Commission.
The downturn has caused Accenture's third-quarter growth rate to drop in the Americas, communications and high-tech, financial services and the global products markets, the company said. Accenture also expects to record a one-time charge of about $960 million for the quarter ended Aug. 30, due to the grant of restricted share units relating to the IPO.
Technology and management consultants are not faring well this year, analysts said. Competitors such as Computer Sciences Corp., Internet consultant Razorfish Inc., and Scient Corp. have all suffered in the economic downturn.
Shares for CSC (CSC: up $0.17 to $36.28, Research, Estimates) have dropped 55 percent from their 52-week high of $81.43, Razorfish (RAZF: up $0.03 to $0.54, Research, Estimates) has plummeted nearly 98 percent, and Scient (SCNT: unchanged at $0.63, Research, Estimates) has fallen 99 percent.
"Accenture is the world's biggest consulting firm in a lousy industry," said analyst George Nichols of Morningstar.com.
Accenture will not benefit from the fact that it is going public in the midst of earnings season, Nichols said. Second-quarter revenue for the consulting sector is also expected to be flat, added analyst Moshe Katri of SG Cowen Securities Inc.
"We are hitting the bottom in this industry," Katri said. "But it's not as bad as it was two quarters ago."
The Accenture IPO is also coming after the offering from KPMG Consulting (KCIN: up $0.75 to $14.45, Research, Estimates), which surged 30 percent in its first day but then dropped below its $18 IPO price and has yet to rebound.
But some believe that Accenture and EDS Corp., the world's No.2 computer services company, will weather the market downturn better than smaller shops such as KPMG and CSC.
"The market for consulting and systems integration weakened further in second quarter and shows no signs of life," said one analyst who declined to be identified. "But the market for information technology outsourcing contracts remains strong across the globe."
Accenture receives 18 percent of its revenue stream from outsourcing while KPMG receives none, the analyst said. Accenture, along with EDS, also has a huge backlog of contracts to help it withstand the downturn.
KPMG is also suffering because of the slowdown in government work. The former Big Five consulting unit receives 29 percent of its revenue from public sector work, the analyst said.
Accenture plans to sell 115 million shares at $13-to-$15 each via lead underwriters Goldman Sachs and Morgan Stanley. The company plans to price Wednesday and trade Thursday under the New York Stock Exchange symbol "ACN."
The Accenture IPO will be Goldman Sach's first IPO this quarter and eighth this year. The success of the offering will largely depend on where it is priced, said IPOfinancial.com's Menlow.
The Accenture offering received a three star rating from John Fitzgibbon, of IPO Desktop, and he expects the issue to receive a $2 premium. Menlow expects a 5 percent bump in the first day, but said the issue is best as a long-term play.
"Accenture is potentially the right kind of deal [in this market] but the pricing is going to be critical," Menlow said. "I personally like to see a lower pricing."
The other IPO
Natus Medical Inc., a medical device company, will also attempt to float an IPO this week. San Carlos, Calif.-based Natus develops tests to identify medical disorders in children from conception to their fist year.
Natus' ALGO products screens hearing in newborns and is sold in the United States, Europe, Japan, Australia, and New Zealand. Natus believes the ALGO system has been installed in nearly 2,000 birthing and children's hospitals in the U.S.
The company also began marketing its CO-Stat analyzer last January which is used to evaluate the likelihood of serious jaundice in newborns. Natus has sold the CO-State product only for clinical research.
Natus plans to sell 4.5 million share at $10-to-$12 each via lead underwriter Dain Rauscher Wessels. The company plans to trade under the Nasdaq symbol "BABY."