EY explores IPO or partial sale of global advisory business
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EY is exploring a public listing or partial sale of its global advisory business as part of the most radical transformation of a Big Four accountancy firm in two decades, according to people with direct knowledge of the matter.
A stake sale or listing would raise the prospect of a massive windfall for EY’s existing partners who own and run the firm, reminiscent of the IPOs of Goldman Sachs in 1999 and Accenture in 2001.
The 312,000-strong firm, which along with Deloitte, KPMG and PwC dominates the accounting industry, is considering a historic break-up of its business as a solution to the conflicts of interest that have dogged the profession and attracted regulatory scrutiny.
EY’s advisory businesses, which offer tax, consulting and deals advice, generated revenues of $26bn last year and employ 166,000 advisers.
EY’s audit business, which generated revenues of $14bn last year, is likely to remain as a partnership following any break-up. Some advisers would shift to the audit side to support its work in areas such as tax, said people with knowledge of the details.
The newly independent advisory business would have the option of incorporating as a company, allowing it to take on external funding through a sale or IPO. Fresh investment could help it to boost growth and compete with larger consulting businesses such as Accenture, which reported revenues of $51bn last year and is valued at about $200bn on the New York Stock Exchange.
A break-up would also free EY’s advisory business to win work from companies audited by EY, opening up a swath of potential new clients that are currently off-limits under independence rules.
EY was being advised on its planning by JPMorgan and Goldman Sachs, people with knowledge of the matter said. The banks declined to comment.
The firm’s senior partners have yet to make a firm proposal to partners on whether to proceed with a restructuring and exactly what form it should take.
The sale of part of the business to external shareholders would be a radical departure. A senior partner at another firm said that selling parts of the business and handing the windfall to partners would significantly alter the existing structure where “you come in naked and you leave naked” with the business’s capital preserved for the next generation.
The Big Four are structured as networks of legally separate national member firms that pay a fee each year for shared branding, systems and technology. The set-up has prevented them from taking on external investment and made it difficult to push through radical overhauls, which require a broad consensus across the business.
However, EY is seen by many accountants as being best placed among the Big Four to push through significant international changes because its global bosses have greater influence than at competitors, where rank-and-file partners have more power.
Partners at EY will nonetheless have the opportunity to vote on any changes. Asked whether EY might line up investors before a ballot, a person with knowledge of the matter said: “We’re looking through those options. We’ll be looking to see what’s in the right interests of all the partners.”
EY and other professional services firms have “the doorbell ringing all the time” from private equity firms seeking to invest in parts of their business, said this person. An IPO would be more difficult to pull off than a private stake sale, the person added.
A split by EY would force its rivals to decide whether to follow suit.
On Friday, PwC, Deloitte and KPMG said they believed in the benefits of having their audit and consulting businesses under one roof.
PwC said it had “no plans to change course” while Deloitte said it was “committed to our current business model”. KPMG said a multidisciplinary model “brings a range of benefits”.
A break-up would probably attract dissent from some partners. Auditing has historically had lower profit margins and could struggle to recruit and retain staff, especially expert partners who make most of their money from consulting but provide crucial expertise in areas such as tax, said Big Four partners.
EY declined to comment on the possibility of a stake sale or an IPO. After news of its break-up planning on Thursday, global chief executive Carmine Di Sibio told staff in an email on Friday that “no . . . decisions have been made”.