EY is exploring a public listing or partial sale of its global consulting business as part of the most radical transformation of a Big Four accounting firm in two decades, according to people with direct knowledge of the issue.
A sale or listing of shares would increase the chance of a huge unexpected for existing EY partners who own and run the company, reminiscent of Goldman Sachs ’IPOs 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 conflicts of interest that have haunted the profession and attracted regulatory control.
EY’s consulting firms, which offer tax, consulting and business advice, generated $ 26 billion in revenue last year and employ 166,000 advisors.
EY’s audit business, which generated $ 14 billion in revenue last year, is likely to remain a partnership after any breakup. Some advisors would side with the audit to support their work in areas such as taxation, said people with knowledge of the details.
The new independent consulting business would have the option of joining as a company, which would allow it to take on external financing through a sale or IPO. A new investment could help drive growth and compete with larger consulting firms such as Accenture, which grossed $ 51 billion last year and is valued at about $ 200 billion on the New York Stock Exchange. .
A breakdown would also free up EY’s consulting business to gain work from companies audited by EY, opening up a slew of new leads that are currently out of bounds according to independence rules.
JPMorgan and Goldman Sachs advised EY on its planning, said people with knowledge of the matter. Banks declined to comment.
The company’s senior partners have yet to make a firm proposal to the partners on whether to proceed with a restructuring and exactly what form it should take.
Selling part of the business to outside shareholders would be a radical way out. A senior partner at another company said selling parts of the business and delivering the unexpected profit to partners would significantly alter the existing structure where “you go naked and go naked” with the business capital preserved for the next generation. .
The Big Four are structured as networks of legally separate national member companies that pay an annual fee for the shared brand, systems and technology. The configuration has prevented them from taking on foreign investment and has made it difficult to push for radical overhauls, which require a broad consensus throughout the business.
However, many accountants believe that EY is best placed among the Big Four to drive significant international change because its global leaders have a greater influence than competitors, where grassroots partners have more power.
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However, EY members will have the opportunity to vote on any change. Asked if EY could line up investors before a vote, someone with knowledge of the matter said, “We’re reviewing these options. We’ll look to see what the right interest of all partners is.”
EY and other professional service companies have the “ringing bell all the time” of private equity firms looking to invest in parts of their business, that person said. An IPO would be more difficult to carry out than a sale of private shares, the person added.
An EY division 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 firms 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 number of benefits.”
A breakup would probably attract the dissent of some partners. Historically, auditing has had lower profit margins and may have difficulty hiring and retaining staff, especially expert partners who make the most of their money with consulting but provide crucial experience in areas such as taxes, they said. the Big Four partners.
EY declined to comment on the possibility of a stake sale or an IPO. Following the news of his planned break-up on Thursday, global CEO Carmine Di Sibio told staff on Friday in an email that “no… Decisions have been made.”