It's been a long time coming but Bearing Point finally succumbed to the mountain of acquisition fuelled debt it acquired between 1999-2002 and has filed for Chapter 11 bankruptcy protection. Per Reuters:
As part of the prearranged plan, a $500 million senior secured credit facility will be replaced with a new secured, senior credit facility. New preferred stock will be issued, unsecured debt will be exchanged for different classes of common stock and all existing shares will be canceled.
As of September, assets were about $1.76 billion and liabilities were about $2.23 billion, according to court documents.
Bearing Point's troubles have been well known in the consulting industry. Earlier this month my Big 4 governance colleague Francine McKenna predicted that unless it was bought quickly, there seemed to be no hope for the company.
The more substantive point is what happens from here. We know that the latest action only affects the US operation. According to Washington Business Journal:
“Our day-to-day operations will continue uninterrupted and we want to assure our employees and customers that we remain committed to serving our clients and to providing world-class consulting solutions,” said Ed Harbach, the chief executive officer. “This restructuring is an important step to secure a better and stronger future for BearingPoint and we expect to emerge from this process in an expeditious manner.”
That's market calming language but in reality the company could just as easily wither. Consulting contracts often contain get out clauses and Chapter 11 would be a trigger event. Most likely, the company has been approached by at least some of its major customers and worked out a deal to ensure that ongoing contracts are not the subject of massive disruption.
Francine talked a plenty about the potential for PwC to wade in and do a deal but as she pointed out, there are many barriers to PwC, most centered around potential conflicts of interest with audit clients. That despite the fact PwC wants to extend its consulting business. There would be other problems. PwC itself is heavily embroiled in regulatory issues arising out of its involvement in the Satyam debacle. Such a move might not therefore work in its favor. Of course, they could have been sitting on the sidelines waiting for a firesale.
It will be intriguing to observe how Bearing Point weathers the immediate storm, especially in its international operations. Past experience tells me that when a large unit fails, the ripples spread rapidly around the world. It is inconceivable there won't be at least some disruption in the non-US operations.