The efforts of auditing giant PriceWaterhouseCoopers to spin off and re-brand its consulting arm as ‘Monday’ seem to have been something of a smokescreen for a more radical move. Just days after the new identity came into effect in late July 2002, the consulting partners at PwC finalised a $3.5 billion deal to join IBM‘s vast Global Services operation. The purchase, which came a mere two years after Hewlett-Packard’s abortive attempts to buy PwC Consulting for a rather more generous $18 billion (€18.4bn), was the first major acquisition for IBM under new chief executive Sam Palmisano (a former head of IBM Global Services).

Assessing the key drivers for the deal, Palmisano cited PWC Consulting’s bluechip client base and technological expertise – particularly in the areas of enterprise resource planning (ERP), customer relationship management and supply chain software implementations. PwC Consulting will add 30,000 employees to IBM Global Services arm (IBM GS) – itself the world’s largest IT services operation with a headcount of 150,000 – and swell annual revenues to more than $40 billion.

But the deal presents IBM with some formidable challenges, say industry observers. Charles Rutstein at Forrester Research, for example, suggests it is a bold move given the current slump in spending on IT consultancy. He is also dubious about how well the relatively independent partner structure of PwC will fit with IBM’s committee management culture. “Both IBM and PWC leaders assure us that the cultures of the two organizations will mesh well. We’re not buying it: For PwC’s 1,200 partners, it’ll be a rude shock to transition from being equity-holding business owners to salaried employees,” says Rutstein.

PwC’s sale to IBM was largely influenced by pressure from US regulators, who have been pushing for the big accountants to separate their consulting divisions from their auditing arms in order to avoid conflicts of interest. Unable to float the business as a public company, PwC may have felt divorcing itself from PwC Consulting and changing the name to Monday did not actually put enough distance between the two operations.

Meanwhile, Bob Djurdevic of Annex Research, a long-time IBM watcher, points out that PwC Consulting is being subsumed into one of the most beleaguered constituents of IBM Global Services- its Business Innovation Services (BIS) unit. “The BIS operation, which accounts for about a quarter of the total IBM Global Services revenue, has been by far the worst performer among the Global Services business segments in the last year or so,” he argues. In the last quarter, he observes, sales in the BIS unit declined by-11%.”

The upshot for current and future customers of PwC, says Forrester: “Customers should be on [the] alert for a brain drain.” Especially when partners receive their share of the $3.5 billion.