Jon Moynihan injected life into the ailing consultancy by getting his top executives to put £100,000 each on the line
When Jon Moynihan joined PA Consulting seven years ago as chief executive, the international management consultancy was on the brink of collapse.
The group was paying the price for overexpansion and a move into expensive headquarters in London's Victoria. Moynihan was aware of the difficulties but it was not until the banks gave him 12 days' notice before calling in loans that he realised how precarious the situation was.
Moynihan, then 43, had toyed with early retirement. Previous jobs at McKinsey, a rival to PA, and then 10 years building up First Manhattan Financial, a highly rated financial-services consultancy based in New York, had left him a wealthy man.
After ruling out retirement, he paid a big personal price to join PA. Under a shareholder agreement with First Manhattan he had to walk away from his 25% stake, then worth $25m, but his conviction that he could rebuild PA has paid off. The group, founded in 1943, will tomorrow report its sixth successive year of record profits with the total at £24m on sales of £277m.
It has been a remarkable turnround and one that has also had the double benefit of winning confidence among blue-chip clients. Back in 1992 the firm owed £30m to its banks and it was haemorrhaging cash. Now PA has cash in the bank of £125m and the operation employs 2,500 people in 50 offices in 22 countries.
Moynihan, who owns about 5% of PA, has also dismantled an archaic share structure that left 70% of the shares in the Button Trust, formed by Ernest Button, PA founder, for the benefit of past and present staff.
Now everybody in the company, from the tea lady to top consultants, owns shares. Over the past seven years the internal share price of PA has soared from 10p to 195p, valuing the company at £86m. But this is only the book-value price and if a stock-market multiple were applied the value would be nearer £500m.
Moynihan insisted shortly after taking up office that top consultants invest £100,000 each at 40p a share to ensure their support. He says: "We were right at the bottom of the cycle. Our survival was in question and I was basically saying, 'do you believe in the company or not?"'
For those who took the gamble it has paid off handsomely. Moynihan aims to double PA's size over the next four years - either organically or by acquisition.
He says: "We have the systems in place to run a company of that scale. We have already approached two companies about how they should merge with us because neither of them is large enough to compete on its own. Our ambition is to build PA into the world's premier consulting firm."
But a flotation is out of the question. Moynihan thinks staff ownership gives a strong competitive advantage and, unlike Goldman Sachs, he has no plans to go public. There is also little financial incentive. When he dismantled the trust he agreed that, if PA did float, the value of the company above book value would be handed to the trust and redistributed among thousands of past staff.
PA's comeback has not gone unnoticed. The company last month won two management consultancy awards for its work for Lloyds TSB and the National Health Service in Scotland. It also recruited 750 staff last year, among them 17 senior consultants mostly poached from rival firms.
Management consultancy has changed hugely from its early days of time-and-motion studies. It now demands complicated solutions and the ability to implement them. Moynihan says: "Every company in the world is going through a change in technology and having to be proficient in using it."
In such circumstances, PA believes it can add value, but to compete on a global stage Moynihan is aware the company needs size to take on the big six firms, which account for 51% of the market.
Moynihan's colleagues say he is a tough taskmaster who has changed the ethos of the company to one based on meritocracy and big rewards for success. Staff are continually evaluated on performance and bonuses are based on personal revenues generated and client satisfaction.
PA also owns two laboratories and has diversified into venture capital, particularly in the fast-growing wireless communication market.
It is generating so much cash Moynihan reckons it could be sitting on £1 billion within five years. He says it could then set up its own banking operation. While this seems a far-fetched idea, Moynihan has proved that he is not to be ignored.
