An Enron Nightmare: Andersen Returns!

Do you remember Arthur Andersen? Once one of the largest and most respected public accounting firms in the world, it collapsed under the weight of a federal conviction for obstruction of justice in regards to its activities during the Enron scandal. Although the conviction was later overturned, Andersen’s reputation was destroyed, and its employees assumed that the reputational stain would last forever.

It now appears, though, that “forever” barely lasts a decade. Earlier this month, WTAS LLC — a firm that was founded by former Arthur Andersen partners — bought the rights to the name and rechristened their firm AndersenTax. CEO Mark Vorsatz reminisced, “Our issues with Enron were the mistake of a few. Irrespective of Enron, we thought we were the benchmark in the industry.”

Vorsatz continued, “This was a fairly thoughtful, deliberative decision. I had colleagues who worked there for 30 years and retired, and they are walking around with a big stain on their chest. We’re going to change that.”

But can they really succeed? Is it possible that the Andersen brand will still generate some value for WTAS? According to certain brand valuation methodologies, Mr. Vorsatz may have a reason for optimism.

Interbrand, for instance, is a global consultancy that defines brand value as the product of: (a) the economic profit of a firm, (b) the role of the brand in its industry, and (c) the strength of its own brand.

Imagine a firm with economic profits of $100 million in an industry where the role of the brand determines 80% of those profits. Even a weak brand that scores a mere 10 on Interbrand’s 0-to-100 scale would be worth $100 million x 80% x 10% = $8 million.

Although $8 million might not sound like a significant valuation for a tainted asset, it is important to note that such a lowly regarded brand might be available for purchase at very little cost. Thus, a firm that purchases the brand might be investing very little in exchange for the acquisition of an $8 million asset.

You may not necessarily agree with the Interbrand valuation methodology, or with WTAS’s decision to acquire the Andersen name. According to theories of brand valuation, though, its transaction may yet prove to be a profitable one.