KPMG recently announced a €26 million offer to acquire Crimsonwing. Richard Fleming, head of advisory at KPMG UK, spoke to Anthony Manduca about the implications of the acquisition. Bryan Cruickshank, global head of IT advisory for KPMG UK, David Walsh, Crimsonwing CEO and founder, James Bonello, Crimsonwing managing director and Pierre Zammit, operations director, Crimsonwing, also contributed to the interview.

Why is KPMG interested in acquiring Crimsonwing?

There are a number of reasons. We were attracted to the very high calibre of the people in the business, the very high quality of the product and the solutions they provide for their clients. We were very much attracted by the clients’ stories and the feedback by those clients has been outstanding.

And then the whole Microsoft dynamics is very interesting and the EIP (enterprise information portal) system is really growing. There really isn’t a huge competitor in the marketplace, so that’s a real opportunity for Crimsonwing to go forward. When you combine the e-commerce aspect, then that was a really complementary fit.

When you say there isn’t a competitor, what exactly do you mean?

We see our broad competitive landscape at KPMG as the Big Four accounting firms plus corporations like IBM, and while there are very big practices around, you really haven’t seen one of those players pick on Microsoft dynamics, yet this is the product which is really starting to take market share. So for us its gives us an additional benefit of giving us a niche in the market to really go after and seek to dominate.

Also, while Crimsonwing has a large client base in Malta, it’s actually serving clients from Malta in the Netherlands and the UK.

We were attracted to the very high calibre of the people in the business

Is it quite normal practice for a company such as KPMG to acquire an IT company?

Yes, it is. I run our advisory business which has about 5,000 people. About 1,000 of these routinely seek to answer big clients’ questions, so we have a pretty sophisticated programme at the moment. I think I can conclude a couple of major transactions in the broader technology space by the end of January.

What are your plans for ‘KPMG Crimsonwing’?

We have big exciting plans. At the moment Crimsonwing has about 300 people in its business, of which 200 are in Malta. Our plan in the near term is to seek to double that, and that also includes doubling the size and scale within Malta. The only thing that will limit that will be our inability to access the talent within Malta. Whereas at the moment Crimsonwing is predominantly serving clients in Malta, the UK and the Netherlands, increasingly their client base are requiring their services to be deployed in other geographies because lots of these companies had other jurisdictions.

We see a much bigger opportunity here, certainly across Europe, to become the implementation partner of choice for Microsoft. We should be in Germany, we should be serving France and we should be serving Italy. If we can access the talent pool from Malta, then Malta will continue to grow to feed that opportunity.

The other really interesting thing for us too is actually that our acquisition within our own KPMG network will be raising the interest levels of our American colleagues as well as our colleagues in other major countries. It’s also attracting really huge interest and excitement at Microsoft.

Richard Fleming, Head of Advisory at KPMG UK. Photo: Darrin Zammit LupiRichard Fleming, Head of Advisory at KPMG UK. Photo: Darrin Zammit Lupi

What main region would you like KPMG Crimsonwing to expand to?

Typically it’s Europe. However, at the moment the issue is not where we expand to, but rather being able to access the talent so that we can serve the client. We think the UK opportunity is huge and expanding in a much bigger way, so that country is important. The same can be said about Holland. However, anywhere across Western Europe in particular there exist large-scale opportunities for us to get into. The skills that Crimsonwing has are fundamentally in short supply.

KPMG has offered €26 million for Crimsonwing. How did you arrive at that figure and at what stage is your offer?

We went through an evaluation process, a due diligence process, there’s a negotiation process and then we arrived at that figure. As Crimsonwing is a publicly-listed business, I don’t have the final details but the price is a premium, I think, to the share price. There are now a number of regulatory hurdles to overcome, but we are targeting a completion date for January 20.

How will the setting up of KPMG Crimsonwing benefit Malta’s economy?

It will in a number of ways. What we should see is increased employment in Malta and therefore that contributes towards tax revenue and economic growth, and our plan over the next four or five years is to triple the business if we can get the right type of skills set.

I think the other area where the Maltese economy will benefit is that one of the things KPMG specialises in is actually adding the business knowledge and the business information to technology. This isn’t just about taking a software package pushing into the business. We have the business knowledge about how to make that work. Crimsonwing certainly has some of that, but KPMG makes its living doing that.

David Walsh, Crimsonwing’s founder and CEO, is to be the chief executive of KPMG Crimsonwing. What message does this send and what other plans are in the pipeline for the new management structure?

I think it’s a great message and a testament to David Walsh who built this business up with his management team. David is very much part of the business going forward and is very committed to helping Crimsonwing on its journey to being part of KPMG. It’s really a vote of faith in the quality of the management team of this business. We are keeping Crimsonwing as a separate business and it will be jointly owned by KPMG’s firms in the UK, the Netherlands and Malta.

What will the acquisition of Crimsonwing by KPMG mean for shareholders of Crimsonwing?

It means they get their money out and they cease to become shareholders of the organisation, so essentially they have sold their interest in the business.

The issue is not where we expand to, but rather being able to access the talent so that we can serve the client

What about the training aspect?

Bryan Cruickshank, Global Head of IT Advisory for KPMG UK:

We see this as more than a low- cost venture, it’s a solution centre. There is expertise in Malta which we will be using to train our professionals across Europe, so we’ll be attracting people back into Malta in order to train them up in the relevant functional capabilities of the applications we are dealing with so that they are more effective when they are deployed to these services in the field. We can think of Malta as a professional training centre for our European professionals.

How did Crimsonwing staff react to this acquisition offer?

James Bonello, Crimsonwing managing director:

The staff at Crimsonwing have welcomed this news. This will put us very much on the fast track – the type of projects that we are going to attract are not going to be local but global projects. The size of the clients, the complexity, the opportunities for the staff are going to be tremendous.

What about Crimsonwing’s clients?

David Walsh, Crimsonwing CEO and founder:

Our clients are aware of our acquisition by KPMG – they have welcomed the fact that KPMG are on board – there are lots of benefits for our customer base. When you look around there are so many positive attributes. Convincing our staff, clients and shareholders has been a relatively straightforward affair. It’s a proud moment for us and for Malta.

And KPMG’s clients?

Bryan Cruickshank, Global Head of IT Advisory for KPMG UK:

The client reaction to Crimsonwing has been very positive. Clients that have got complex international projects see that the KPMG involvement will help. It’s exactly the same for KPMG clients; I think this is a demonstration that we are absolutely serious about helping our clients transform their businesses and putting in the capabilities in order to build the enabling systems.

So there’s been a hugely positive feedback from KPMG clients as well for what we’re doing, and indeed Microsoft, who are very important in all of this, and who made it very clear that they see this as a real statement of intent. The partnership that they see emerging is very differential to what they have with others. They see us as the business transform-ation partner.

What about the reaction of the Maltese government?

Richard Fleming:

The reaction has been very positive because of the growth story and what this deal means for Malta.

How will this acquisition help recruitment?

Pierre Zammit, operations director, Crimsonwing:

This will make us more attractive as a recruiter. With the KPMG badge, we should be more attractive to the young generation, and hopefully will be able to reach the ambitious targets we are looking at.

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