Buyout Firm Offers For Andersen's Tax Practice

by Mike Godfrey, Tax-News.com, New York

09 April 2002

After foundering consultancy Andersen last week tentatively agreed to sell some of its tax business to Deloitte & Touche LLP, San Francisco firm Fox Paine & Co this weekend signed a memorandum of intent to acquire Andersen's entire tax unit in a management-led buyout for between $800 million and $900 million.

The memo is supported by 450 partners in the tax group, and would include 4,000 professional and support staff across the US. That represents about 17% of Andersen's US personnel, which the firm last week said it would reduce by 7,000 jobs.

Andersen is aiming to reduce itself to an audit-only practice through cutbacks and disposals, and a quick, clean sale to Fox Paine & Co is likely to seem more attractive than the partial bid made by Deloittes, and would give the tax partners control of their group rather than being submerged within the large business structure at Deloittes. By selling its tax unit to Fox Paine, Andersen would be able to unload the unit in one sale and therefore eliminate the likelihood that its best partners with the most lucrative clients would get poached, leaving an unattractive rump which would be harder to sell.

Deloitte, which was interviewing individual partners over the weekend, is hoping to cherry-pick the best performers. Under Deloitte's plan, it would hire individual partners, not the entire unit, making sure that it would not be liable for post-Enron compensation.

Any agreement to buy Andersen's tax group would be dependent on assurances that Enron-related liability wouldn't be transferred, and efforts to sell all or part of the US firm previoujsly fell apart on concerns that the buyer could well inherit some of Andersen's liabilities in the Enron case.

Fox Paine, with $1.5 billion under management, and a significant business in leveraged buy-outs, was formed in 1997 by Saul A. Fox, a former partner at Kohlberg Kravis Roberts & Co. and W. Dexter Paine III, a former partner of Kohlberg & Co. Leveraged buyout firms typically buy units with steady cash flow, making the Andersen tax division, with a guaranteed stream of revenue filings each year, a potentially profitable candidate, although there is a question mark over whether the unit would continue to be so successful when separated from its associated accounting and audit arms.

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