EY sees other Big Four firms mirroring its proposed split

9:11 am Tuesday, December 06th, 2022

By Huw Jones

LONDON (Reuters) – Splitting EY into separate accounting and consultancy businesses will help pay rising technology bills and “inevitably” be copied by rival “Big Four” firms, a top EY official told a Reuters Breakingviews podcast.

Andy Baldwin, global managing partner, said EY was holding roadshows to explain a “compelling case” for the company’s third attempt to split into two – if partners across the world give their backing in votes during in the first quarter of next year.

If ratified, the split of a near $50 billion company would mark the biggest shake-up in the sector since the 2002 collapse of Arthur Andersen, the auditor that was mired in the Enron scandal and whose downfall reduced the “Big Five” to the “Big Four” of PwC, Deloitte, KPMG and EY, formerly Ernst & Young.

“It was an appropriate time to dust down the work we did before,” Baldwin said.

“I now feel it is inevitable. We do believe there is a first mover advantage. We also believe the competition at some point in time will also have to respond,” he said. Some of the other Big Four firms have said they have no plans to copy EY.

Critics caution that splitting the business could see the auditing side suffer in the shadow of what is traditionally more lucrative consulting work. EY says the split will make it easier to raise capital to invest and create two more agile companies.

“We want our assurance business to be as successful in the future as it has been in the last 10 years,” Baldwin said.

Rejection from partners over the substance of the deal would be a problem, he said.

But if the deal was turned down because of its timing in unsettled financial markets, then it could be voted on again at a later date given the fundamental drivers of the transaction won’t change, Baldwin said.

“It may come to timing point, so our plan is that we will continue to what we call soft separation next year, and continue to start to run these two businesses separately, albeit they will continue to be part of the single enterprise of EY,” Baldwin said.

(Reporting by Huw Jones; Editing by Mark Potter)