Deloitte & Touche Consulting Unit to Form New Firm

Deloitte & Touche LLP is spinning off a Costa Mesa-based consulting unit that aims to sell big corporations a smorgasbord of services, including management of telecommunications, health services and training.

The new firm, EPS Solutions--a combination of the Deloitte unit and dozens of other firms that provide such “outsourced” services throughout the nation--initially will have annual revenue of $250 million and 1,500 employees nationally.

It aims to more than triple its work force to 5,000 by the end of next year--and may eventually decide to go public, executives said Wednesday.

Demand for outsourcing services is growing so fast that accounting rules hindered expansion opportunities if the Costa Mesa unit remained part Deloitte & Touche, said EPS Chief Executive Chris Massey, a former Deloitte & Touche partner.

The trouble? EPS takes as its fee a percentage of the money it saves corporations. Accounting firms, however, are restricted from providing services on such a contingency basis for the clients that they audit.

Deloitte & Touche’s top management decided to exit the market, says Robert Grant, managing partner of Deloitte & Touche’s Costa Mesa office.

A group of 500 shareholders, including Massey, purchased EPS from Deloitte & Touche in a transaction partly financed by a $100-million bank loan, Massey said.

Many of the shareholders previously worked for companies that provided outsourcing work on a contract basis. Three dozen such companies have combined with the former accounting firm unit to form EPS.

Financial terms of the sale weren’t disclosed.

In the growing outsourcing industry, EPS aims to carve a niche as a consultant that can advise chief executives on overall management of various services they buy from outside firms. It also plans to provide a broad range of specialty services itself, so corporations can do one-stop shopping for outsourced services, rather than buying them on a piecemeal basis.

Massey predicts demand for EPS services will increase as chief executives hunt for fresh ways to meet earnings projections amid growing economic uncertainty. “Our clients are telling us there’s some potentially choppy times ahead,” he says.

“They’ve already done what they can--they’ve cut to the chase, re-engineered and consolidated to take costs out. They are now looking for other solutions to keep driving their earnings.”

EPS’ headquarters in Costa Mesa employs about 100 workers, who occupy a floor of the Imperial Bank building on Town Center Drive. The company expects to lease two more floors in the building and add as many as 200 more headquarters employees by the end of next year.

Corporate clients will welcome a billing plan based on how much EPS can save them, said Glenn Schafer, president of Newport Beach-based Pacific Life Insurance Co., one of EPS’ clients. “The one nice thing is that you don’t pay unless you get results.”

The company expects most of its revenue will result from taking fees of 35% to 50% of the amount of money it saves a company. Schafer says that over the last several years, Massey and his crew saved significant amounts for Pacific Life in areas such as training personnel.