EY is considering an IPO or partial sale of its global advisory business as part of the most radical transformation of a Big Four accounting firm in two decades, according to people directly familiar with 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 company, reminiscent of the 1999 Goldman Sachs and 2001 Accenture IPOs.
The 312,000-person firm that, along with Deloitte, KPMG and PwC, dominates the accounting industry is considering a historic wind-down of its business as a solution to the conflicts of interest that dogged the profession and prompted regulatory scrutiny.
EY’s advisory businesses, which provide tax, advisory and transactional advice, generated $26 billion in revenue last year and employs 166,000 advisors.
EY’s accounting business, which generated $14 billion in revenue last year, is likely to remain as a partnership after a dissolution. Some advisers would switch to the audit side to support their work in areas like tax, people with knowledge of the details said.
The newly independent consulting firm would have the option of founding itself as a company and raising outside capital through a sale or IPO. New investments could help the company spur growth and compete with larger consulting firms like Accenture, which posted revenue of $51 billion last year and is valued at about $200 billion on the New York Stock Exchange.
A split would also enable EY’s advisory business to attract business from companies vetted by EY and tap into a range of potential new clients currently off-limits under independence rules.
EY was advised on its planning by JPMorgan and Goldman Sachs, people familiar with the matter said. The banks declined to comment.
The firm’s senior partners have yet to make a concrete proposal to the partners as to whether to proceed with a restructuring and what form it should take.
Selling 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 turning profits over to partners would significantly transform the existing “get in naked and leave naked” structure while preserving the company’s capital for the next generation remains.
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 structure has prevented them from accepting outside investment and made it difficult to push through radical restructuring that requires broad consensus across the company.
However, many accountants see EY as the best place among the Big Four to enact significant international change, given that its global bosses have greater leverage than its peers, where simple partners hold more power.
Partners at EY will still have the opportunity to vote on changes. When asked if EY could line up investors ahead of a vote, a person familiar with the matter said, “We’re exploring those options. We will see what is in the right interests of all partners.”
At EY and other professional services firms, the doorbell rings “all the time” from private equity firms trying to invest in parts of their business, this person said. An IPO is more difficult to execute than a private sale, the person added.
Splitting up EY would force its competitors to decide whether to follow suit.
On Friday, PwC, Deloitte and KPMG said they believe in the benefits of having their auditing and consulting firms under one roof.
PwC said it has “no plans to change course,” while Deloitte said it is “committed to our current business model.” KPMG said a multidisciplinary model “offers a number of benefits.”
Separation would likely provoke opposition from some partners. Auditing 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 offer critical expertise in areas like tax, Big Four partners said.
EY declined to comment on the possibility of a stake sale or an IPO. Following news of his separation plans on Thursday, global chief executive Carmine Di Sibio told employees in an email on Friday that “no . . . decisions have been made”.