Booz, Allen: Azure Chip Status Validated
January 9, 2011
The split of the “old” Booz, Allen & Hamilton was a Yogi Berra déjà vu moment. Booz, Allen & Hamilton tried the public company route 40 years ago. The step was reversed and BAH became a privately held firm once the money tree had been shaken. In 2010, BAH, once in the same league as McKinsey and Bain, split into two parts: Booz in New York and Booz Allen Hamilton in Washington, DC. My view is that consulting firms are difficult companies to manage, not impossible, of course, just tough. One of the challenges for publicly-traded consulting companies is the hassle of conforming to the 12 week lockstep of the SEC. Another annoyance is the fact that outsiders can review the financial data, plug them into one of those MBA spreadsheets, and generate more ratios than anyone has time to review. When an oddity surfaces, then the excitement begins.
Navigate to “Shares of Booz Allen Hamilton Rank the Highest in terms of Debt To Equity Ratio in the IT Consulting & Other Services Industry” and you will see an example of the types of insight such scrutiny delivers. The main point of the write up is, in my opinion:
Booz Allen Hamilton (NYSE:BAH) has a Debt/Equity ratio of 2.45x based on total debt of $1.5 billion. Gartner (NYSE:IT) has a Debt/Equity ratio of 1.95x based on total debt of $300 million.
International Business Machines (NYSE:IBM) has a Debt/Equity ratio of 1.23x based on total debt of $27.5 billion.
What this means is that the publicly traded chunk of BAH is performing less well than the azure chip outfit, Gartner Group. If the data are accurate, it means that the publicly traded BAH is now a verified azure chip consulting firm.
Gartner, as you may know, opines about the future of search and other types of technology. The staff is hard working and focused on making sales. Closing deals is a great skill. BAH is going to be focused on explaining why a once blue-chip outfit is dragging around a big chunk of debt. Sure, the debt can be explained just like the old BAH Minerva search effort and BAH’s missing out on a couple of big procurements in FY2010. Consulting firms unable to manage their own finances may not be the consulting firms prospects looking for guidance that works hire.
Welcome, BAH to the azure chip ranks. Now the firm needs to hire more English majors, unemployed journalists, and failed Web masters. Profitability and debt reduction await once those staff costs are cut and reported in a 10-K. Just my view, of course.
Stephen E Arnold, January 9, 2011
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