Cisco Takes Stock In KPMG (News) August 9, 1999

Cisco Takes Stock In KPMG

By Dave Marino-Nachison (TMF Braden)
August 9, 1999

Internet networking firm Cisco Systems (Nasdaq: CSCO) stretched its net considerably today with its announcement of a deal to invest $1 billion in accounting and consulting firm KPMG LLP's Internet services business, which focuses on telecommunications and enterprise markets.

KPMG, which expands its strategic partnership with Cisco, will add 4,000 Internet integrators over the next 18 months and build six technology centers. Cisco, meanwhile, gets a 20% stake in the Internet unit and will get customer support from the consultancy.

For more on the companies' already close working relationship, click here. It's one of Cisco's most productive team efforts, according to an April Investors' Business Daily story that says CEO John Chambers considers a partnership a success when Cisco and its partner each bring in $500 million in revenues after three years. Two years in, KPMG is the closest of Cisco's partners to that milestone, in no small part because its association with Cisco helped it win a contract to work with PC distributor Ingram Micro (NYSE: IM).

Deals like this one, uniting equipment companies with consulting firms, are particularly nice for the Ciscos of the world because they essentially get to add thousands of individuals to their sales staff without putting them on payroll.

For another Foolish look at a somewhat similar deal, check out Dale Wettlaufer's take on Gateway's (NYSE: GTW) partnership with General Electric's (NYSE: GE) GE Capital Information Technology Solutions. When combined with Cisco's 6,000-member sales force, that's a sizeable army spreading each other's gospel.

Besides the obvious benefits of having KPMG's thousands of consultants toting Cisco equipment when they head out on jobs, Cisco also stands to benefit from KPMG's planned public offering of a portion of its consulting business.

"We expect the Cisco-KPMG relationship to grow the business significantly, creating a more valuable entity, and we believe the market will recognize that valuation at the time of an IPO," KPMG Chairman and CEO Stephen Butler said in a statement today.

In related news, some observers are wondering aloud about KPMG's decision to take itself partially public, as it would be the first major accounting and consulting firm to do so. With a sudden influx of outside investors -- and, potentially, clients -- suddenly obtaining ownership in the company, would its credibility as an auditor come under fire?

The company is waiting for the OK from the Feds; it's now holding out for an OK from the Independence Standards Board after talks with the Securities and Exchange Commission didn't pan out.

Related Links:
IBD story on Cisco's strategic partnerships
Cisco corporate site
KPMG corporate site

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