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PwC Hunting for Tech M&A, Sees ESG as $1 Billion Opportunity

Nov. 19, 2021, 9:45 AM

After a year of massive changes for PwC LLP, the Big Four accounting firm’s top leader is focused on building its sustainability services into a $1 billion business, and is ready to bolster its staff and technology lineup with a fresh round of investments.

“Within the next three years it’ll be a billion-dollar business,” Tim Ryan, the U.S. firm’s chairman and senior partner, said in an interview this week with Bloomberg Tax & Accounting.

After the major restructuring announced in June, Ryan is continuing to reshape how the firm operates: from acquisitions to rolling out a new work-from-anywhere policy, to the skills it seeks in staff.

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One example: PwC wants to tap its experience delivering reliable tax and financial information to help companies build up a similar bank of internal safeguards, skilled workers, and oversight to meet the growing demand for environmental, social and governance reporting, or ESG, among other challenges facing businesses

“There’s no short cut,” Ryan said. “The way you gain trust is you build those systems. And that’s our big bet.”

Prioritizing ESG is a direct result of market demand, not regulators, he said: “The market is sending very clear signals. Shame on us if we don’t listen.”

The firm consolidated its three primary service lines by merging tax compliance with auditing and tax advisory into its consulting business. The move was designed to create a more agile firm and to better support clients.

And Ryan may be right—investors, analysts, and regulators are all beginning to ask more about the taxes companies pay and where, as well as the greenhouse gases they emit.

U.S. companies are already gearing up for new mandates that would greatly expand on what they tell investors about the risks they face from a warming planet and the transition away from fossil fuels. Meanwhile U.S. and global leaders are weighing tax policy changes that would realign corporate profits with locally taxable income.

Both policy changes could boost revenue for the Big Four firms, spurring fee increases for tax and audit clients and increasing demand for lucrative advisory services as companies navigate shifting regulations.

“The potential is huge,” Christina Sautter, a transactions law professor at Louisiana State University, said, noting that the market around ESG is expected to keep growing. The Big Four firms could absorb smaller boutique providers through mergers or acquisitions, bringing their expertise in-house, she said.

To meet that burgeoning demand for climate reporting and strategy, PwC is hiring new environmental professionals with backgrounds in areas like carbon emissions and water quality.

It has already launched baseline training for its current employees, with plans to boost all professionals’ knowledge and familiarity with Scope 3 emissions, net-zero commitments and other concepts that are integral to sustainability reporting.

“This has to be common language,” Ryan said, adding that it “will be the language of the future.”

Room to Grow

Cloud, artificial intelligence, new technologies, and the needs of privately held businesses—a fast-growing segment of the economy—will join ESG next year as top priorities for the firm.

After hitting pause on major acquisitions in recent years, PwC is looking for deals that could add to its technology portfolio as well as skilled staff to its roster of 55,000 professionals.

Ryan envisions adding thousands of additional workers in the next three years—boosting total headcount to 75,000, despite this year’s higher than normal turnover.

“Our M&A activity will be to get talent, but it will equally be focused on to get technology and intellectual property,” he said. “It’s the right time.”

Acquisitions and explosive growth in the Big Four’s consulting businesses have caught the attention of the Securities and Exchange Commission, which has warned them to ensure that those deals or those involving their clients don’t interfere with their ability to meet rigid conflict-of-interest rules for public company auditors.

There’s at least one trendy area for the Big Four that PwC is sidestepping, though.

Ryan said the firm’s small legal business—a legacy one—will not grow, even as competitors like Deloitte & Touche LLP ramp up their legal-service offerings. PwC is looking elsewhere for acquisitions, he said.

“That’s not a priority area for growth for us,” Ryan said. “We have to stick to where we’re incredibly strong and where our knitting is.”

Tax and Audit

Pressure on companies over their tax payments and reporting isn’t likely to go away, Ryan said, and that contributed to the decision to merge audit and tax compliance.

Congress is considering proposals to beef up IRS enforcement and enact a tax based on earnings reported in financial statements—documents designed for use by investors and lenders. Fusing PwC’s audit and tax compliance divisions may help if those measures survive congressional negotiations and similar international proposals go forward.

Even without greater regulatory scrutiny or new taxes, companies need to connect the dots on how much they pay to fund government services with their publicly reported profits, said Wes Bricker, who co-leads the firm’s trust solutions practice, which blends audit and tax under one umbrella.

“We’re now doing that together, because we see those two systems of reporting—tax reporting and investor reporting—coming closer together,” Bricker said. “People will want to understand and be able to crosswalk between those two, just the same as our ESG conversation; people want to crosswalk between the financial statements and operational impact.”

To contact the reporters on this story: Amanda Iacone in Washington at aiacone@bloombergtax.com; David Hood at dhood@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; David Jolly at djolly@bloombergindustry.com

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