EY UK partners gathered last month at the five-star Royal Lancaster Hotel near Hyde Park in west London for a sales presentation by their senior leaders on the multibillion-dollar break-up of the company
Security guards were on hand to prevent intruders from attending the top-secret briefing, which EY global chairman and chief executive Carmine Di Sibio addressed via video link, according to a member who attended.
Hywel Ball, Senior Partner, EY UK, Omar Ali, Managing Partner, Financial Services, EMEIA, Anna Anthony, Managing Partner, UK Financial Services, and Alison Kay, UK Managing Partner, Client Services, also they talked about the virtues of the possible historic division of the company with the partners gathered, according to those present.
The firm’s leadership sold the partners on the benefits of splitting and flotation of EY’s consulting arm, which they said included the ability for the firm to work for the tech giants without conflicting with its audit practice, as well as a multi-million payday for partners. .
TO READ EY’s plan to split audit and consulting arms slowed by leadership changes and debt
However, high-level break-up talks are still stuck over issues such as the pension liabilities of some EY member firms and who pays the potential bill for multibillion-pound legal claims related to audit scandals such as Wirecard and NMC Health, he has reported. a person with knowledge of the discussions.
Experts and former EY partners say that while management talks are dragging on, there is still much confusion over issues such as partner pay, when partners will be able to cash out their new shares and where they will end up the different parts of the company. after the separation.
The person with knowledge of the talks said EY’s top brass will decide whether or not to move forward with the breakup later this month, with partners to be filled in on the finer details of the offer later.
“If it’s a corporate M&A deal, we’re at the point where there’s press coverage that we’re thinking about it, but not at the stage where we’re bringing a proposal to the board,” the person said .
One area of uncertainty is how the company will be divided after the split.
Auditors will sit in the new audit firm and consultants in the new consultancy, but there are many areas where the dividing line between the two firms is not as clear, several current and former EY employees say.
Practices with question marks include areas such as tax, actuarial and valuation, which work with both the audit and consulting arms of the firm.
A former partner said they had heard of a “battle” within the company to keep the juicy parts of the business and shed less attractive units.
“In an opt-out situation you very often try to get rid of things you don’t want and that’s what’s happening here,” they said.
EY staff and partners are also split on where they want to go, with some preferring to stay with the audit firm because of the synergies with their practices, and others wanting to leave to avoid being stuck doing what which they consider less interesting in the service of the company. auditors, people at the firm said.
TO READ EY’s audit quality slips ahead of potential split
“We are trying to create two businesses that are attractive, robust and viable,” said the person with knowledge of the split talks.
“There’s a robust discussion about what goes where and why, and there are people who are attracted to different parts of the business.”
The company’s leadership also discussed at last month’s meeting how new partner payment systems would work after the split, the aide said.
Partners in the new consulting firm will get stock worth seven to nine times their current annual compensation, The Wall Street Journal reported, but their pay will be cut by up to 40 percent.
One element of uncertainty is how long it will take to acquire partners’ shares in their new ventures, allowing them to convert their capital into cash.
“If they say you can only sell them in five years, how are you supposed to pay the mortgage in the meantime?” said a former partner.
TO READ Alvarez, Marsal Europe boss set to ‘seize’ Big Four challenges amid EY split talks
The person with knowledge of the talks said it would not be possible to fully work out the economics of the deal until much later.
“No one will know what the exercise price of a share in an IPO of the consulting business will be until it is much closer to the IPO stage and that is much further in the future,” they said .
Members at the Royal Lancaster meeting were told the leadership would poll within the association over the summer before compiling a member information document setting out the details of the split later this year.
The same process will occur at all EY member firms worldwide, with each member firm voting on whether or not to approve the deal, a partner said.
Another insider said the major U.S. and U.K. associations will vote first on the deal in the hope that if they give it the thumbs up, it will pressure smaller member companies to follow suit.
TO READ EY breakup faces tough questions about partner pay and bear market
If management decides to proceed with a split, the U.K. and U.S. associations are likely to vote on the deal in December with some of the other larger firms after the start of the New Year, the person with the knowledge said. the conversations
“Does it put pressure on other companies to follow or does it just make sense for the bigger companies to go first?” they said
Once complicated issues in areas such as pensions and litigation liabilities can be agreed at the senior level, the finer points will be ironed out and presented to partners, the person said.
“We are working on a process to get to the answers and we are confident that we will get them,” they added.
To contact the author of this story with comments or news, please email James Booth