EY’s plan is set to split its audits and advisory operations to give partners up to $8 million in stock each, according to people familiar with the internal plans.
The Big Four is preparing to break up its global business as part of the biggest turmoil in the accounting sector in two decades.
under plans, EY It aims to bring its fast-growing advisory business to the public, and distance it from the group of accountants who audit clients such as Facebook, Google, Amazon and Oracle. The audit business will remain a network of partnerships after the dissolution, while its advisory business will become a public company.
According to individuals, the company hopes to sell about 15 percent of its consulting business for more than $10 billion, leaving 70 percent in the hands of its partners. Partners who join the new consulting business are expected to receive shares worth seven to nine times their annual wage, potentially worth up to $8 million.
The audit partners are set to receive cash compensation from the IPO worth about two to four times their annual pay under the plan, which would be about $2 million based on average salaries ranging from $850,000 to $900,000 a year. Plans are a work in progress and can be changed or abandoned altogether. These numbers were first published in the Wall Street Journal.
The breakup of the 312,000-strong company could happen as soon as next year and is an attempt to escape the conflicts of interest that have plagued the profession and have drawn intense scrutiny from regulators around the world.
However, managers and directors below the partner level will only receive a nominal amount under the current plans. “They are very unhappy that the partner’s door is now closed,” said a person close to the discussions.
The people said the company plans to borrow about $17 billion, with some money needed to pay scrutiny partners. About 15 percent of new business will be allocated to employee stock incentives.
EY member companies will vote on the proposals in the fall and it is likely that further changes will be proposed before then. It remains unclear how some departments will be divided, such as taxes, and whether they will be considered as part of an audit or advisory. One individual said tax capabilities would be required in both the audit and advisory departments.
Selling part of the company to outside shareholders would be a dramatic departure from EY’s current structure, in which partners do not retain a stake in the company when they leave, preserving capital for the next generation.
This split will create a traditional low-growth auditing business alongside a high-growth consulting firm. Revenue in the audit arm of EY It grew 27 percent between 2012 and 2021which was outpaced by 93 percent growth for the rest of its business.
audit work It generated $14 billion in revenue in fiscal year 2021While EY’s advisory business, which advises on tax and deals, generated $26 billion in revenue.
The breakup will enable EY’s consulting business to target audit clients such as Amazon, Salesforce and Google, which are currently outlawed due to the risk of conflicts of interest.
EY said it was conducting an “assessment from a position of strength” and “any choice we choose will . . provide a compelling future for the entire EY organization”.
If the separation continues, it could extend the life of Carmen Di Sibiu, global president and CEO of EY. His first four-year term as global head of EY is set to expire in June 2023, and will likely end before any division is completed.
Di Sibiu will have turned 60 by then, which means he will need an exemption from the company’s regular mandatory retirement rules to run for a second term or stay on long enough to see a split, according to insiders.
“It would be premature to speculate on any leadership issues as no decisions have been made, but there are provisions in our governance to extend the retirement of a former partner and it is not an unusual event,” EY said.
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