EY Explores IPO or Partial Sale of Global Advisory Business
Ernst & Young Global Limited or better known with its trade name, EY, is a multinational professional services network. It is recognized as one of the Big Four accounting firms. EY provides audit, tax, business risk, technology and security risk services, and human capital services to companies worldwide (Forbes, 2020).
Recently, EY has been exploring the thought of carrying out a public listing or partial sale of its global recommendatory business. This will be considered part of the biggest transformation of a Big Four accounting firm in two decades (O’Dwyer & Massoudi, 2022).
A stake sale or listing would mean that there will be an increase in likelihood of a large financial gain for EY’s existing partners (O’Dwyer & Massoudi, 2022).
EY is planning a major break-up of its business to address the conflicts of interest that have troubled the industry and drawn regulatory attention (O’Dwyer & Massoudi, 2022).
This will affect many businesses of EY’s, for example EY’s advisory businesses, which provides tax, consulting, and deals suggestions and EY’s audit businesses. Some advisers would convert to auditing to assist the firm’s work in areas like tax. The newly independent consulting business would be able to incorporate as a corporation, allowing it to raise funds through a sale or initial public offering (IPO) (timestotimes, 2022).
The breakup will also liberate EY’s advisory business to obtain work form companies audited by EY, exposing a field of potential new clients that are currently prevented by independence rules (timestotimes, 2022).
Senior partners have yet to issue an official decision to partners on whether or not to proceed with a reorganization and what form it should take.
Selling a portion of the business to external shareholders would be a drastic shift for the company. Selling portions of the business and managing the windfall to partners, according to a senior partner at another firm, would dramatically disrupt the traditional structure, where “you come in naked and you leave naked,” with the business capital maintained for the upcoming generation (O’Dwyer & Massoudi, 2022).
Nevertheless, EY partners will have the option to vote on any modifications. When asked if EY was seeking investors before the ballot, a person who is knowledgeable of the situation stated, “We’re looking through those options. We’ll look at what’s in the best interests of all the partners” (O’Dwyer & Massoudi, 2022).
If EY does break up, then its competitors will have to decide whether to imitate them or not.
News of this break up has made PwC, Deloitte, and KPMG voice their opinion on this matter. PwC seemed to have “no plans to change course” while Deloitte stated it was “committed to our current business model”. KPMG said that a multifunctional methodology “brings a range of benefits” (O’Dwyer & Massoudi, 2022).
Some partners would most likely object to a breakup. According to Big Four partners, auditing has historically had lower profit margins and may struggle to recruit and retain workers, particularly experienced partners who make most of their money from consulting but provide critical expertise in areas such as tax (O’Dwyer & Massoudi, 2022).
EY declined to comment on the likelihood of a stake sale or an initial public offering. “No… decisions have been taken,” global chief executive Carmine Di Sibio said in an email to colleagues on Friday after learning of the company’s break-up plans on Thursday (O’Dwyer & Massoudi, 2022).
References:
Forbes. (2020, November 30). Ernst & Young. https://www.forbes.com/companies/ernst-young/?sh=5c8263fc50b4
O’Dwyer, M., & Massoudi, A. (2022, May 28). EY explores IPO or partial sale of global advisory business. Financial Times. https://www.ft.com/content/8a17c3e5-57bb-4af8-9cda-b0f424edc5b2 \
Timestotimes. (2022, May 28). EY explores IPO or partial sale of global advisory business. Timetotimes.Com. https://timetotimes.com/ey-explores-ipo-or-partial-sale-of-global-advisory-business/