EY breakup scuttled amid objections from US audit partners
EY is stopping the plan to split its global audit and consulting business because the US firm has decided not to move forward, according to a Tuesday internal memo to its 13,000 partners.
The Big Four accountancy was ultimately unable to resolve an impasse with US audit partners and retired (pension-drawing) US partners, who argued the proposed split would leave the audit company weak and uncompetitive.
US audit leaders complained the consulting business would have taken too much of the lucrative tax business. Despite an intense series of negotiations in New York in the last month, a compromise failed to be reached.
People familiar with the matter told The Wall Street Journal that although most of the US executive committee backed the deal, US managing partner Julie Boland refused to override the objections of a group of senior audit partners.
The US firm holds outsized influence on the wider EY network, representing 40% of global revenue.
The failure to gain consensus approximately a year into the split plan represents a major blow to the Big Four accountancy’s public image – framing its process as half-baked and lacking in research. If a handful of US audit executives were able to eventually scuttle a deal affecting 13,000 partners globally – of which the overwhelming majority were supportive, according to chairman Carmine Di Sibio – how well-thought-out was the plan? And why spend over $100 million on the split process without a higher degree of confidence that those who stand to lose the most – the expansive US audit business – would be 100% on board?
A Tuesday internal note from Boland and US leaders, viewed by WSJ, said the leaders would support a breakup at the right time. They listed demands for change, including a simplification of firm structure, investments in strategic parts of the business, and a modernization of governance.
Rival Big Four firms will again be looking to poach EY audit partners now that the prospect of multimillion-dollar payouts has evaporated. The split would have raised money from a consulting company IPO and additional borrowing to compensate audit partners for losing the higher-growth, more valuable consulting division.
US leaders in their note mentioned the transaction economics were more challenging – highlighting the headwinds of higher interest rates and more volatile markets.
Other EY employees will be annoyed by the disruption and uncertainty brought on by the year-long split process. The plans likely led to a cancelation of staff holiday bonuses in 2022 as the firm looked to pump up valuation ahead of an IPO, adding further to staff frustration.
