EY eyes IPO or partial sale of its global advisory business
EY is considering a public listing or partial sale of its global consulting business in the most sweeping transformation of a Big Four accounting firm in two decades, according to people with direct knowledge of the matter.
A stake sale or listing would open the prospect of a massive windfall for existing EY partners who own and run the business, reminiscent of the IPOs of Goldman Sachs in 1999 and Accenture in 2001.
The 312,000-person firm, which along with Deloitte, KPMG and PwC dominates the accountancy industry, is eyeing a historic spin-off of its business as a solution to conflicts of interest that have plagued the profession and sparked regulatory scrutiny.
EY’s advisory business, which offers tax, advisory and transaction advice, generated $26 billion in revenue last year and employs 166,000 advisers.
EY’s audit business, which generated $14 billion in revenue last year, is expected to remain a partnership after a breakup. Some advisers would switch to the audit side to support its work in areas such as tax, people with knowledge of the details said.
The newly independent consulting firm would have the option of incorporating, which would allow it to accept external financing through a sale or an IPO. New investments could help it spur growth and compete with big consulting firms such as Accenture, which reported revenue of $51 billion last year and is valued at around $200 billion on the stock exchange. from New York.
A breakup would also free up EY’s consulting business to win work from EY-audited companies, opening up a swath of potential new clients who are currently barred under independence rules.
EY was advised on its planning by JPMorgan and Goldman Sachs, people with knowledge of the matter said. Banks declined to comment.
The firm’s senior partners have yet to make a firm proposal to the partners on whether to proceed with a restructuring and what exact form it should take.
Selling part of the business to outside shareholders would be a radical departure. A senior partner of another firm said that selling parts of the business and handing over the windfall to the partners would significantly change the existing structure where “you come in naked and you leave naked”, with the company’s capital being preserved for the next generation.
The Big Four are structured as networks of legally distinct national member companies that pay a fee each year for sharing brand, systems and technology. The setup prevented them from accepting outside investment and made it difficult to implement sweeping redesigns, which require broad consensus across the company.
However, EY is seen by many accountants as best placed among the Big Four to push through significant international change, as its global bosses wield greater influence than among its competitors, where grassroots partners have more power.
However, EY partners will have the opportunity to vote on any changes. When asked if EY could line up investors ahead of a ballot, a person with knowledge of the matter said: “We are looking at those options. We will seek to see what is in the interest of all partners.
EY and other professional services firms have “the doorbell ringing all the time” from private equity firms looking to invest in certain parts of their business, this person said. An IPO would be more difficult to achieve than a private sale, the person added.
A split from EY would force rivals to decide whether to follow suit.
On Friday, PwC, Deloitte and KPMG said they believed in the benefits of having their audit and advisory businesses under one roof.
PwC said it had “no intention of changing course” while Deloitte said it was “committed to our current business model”. KPMG said a multidisciplinary model “brings a range of benefits.”
A breakup would likely attract dissent from some partners. Audit has historically had lower profit margins and may struggle to recruit and retain staff, particularly expert partners who make most of their money from consulting but provide crucial expertise in areas such as taxation, the Big Four partners said.
EY declined to comment on the possibility of a stake sale or an IPO. After his breakup planning was announced on Thursday, global chief executive Carmine Di Sibio told staff in an email on Friday that “no . . . decisions have been made.”