EY boss targets $10bn boost from Silicon Valley tie-ups after break-up
EY’s global head said the firm’s separation from the Big Four would earn its consulting division up to $10 billion in additional fees by freeing it from conflicts of interest that block partnerships with the world’s largest technology groups.
The accounting firm is under pressure to decide whether to carry out a historic split, as its global leaders meet in New York this week and its competitors continue with their model of combining audit and consulting.
EY leads the way in auditing large US tech companies, reviewing the accounts of Amazon, Google, Oracle, Salesforce and Workday. In a recent interview with the Financial Times, EY chairman and CEO Carmine Di Sibio said the firm’s position in the tech audit business was “both a blessing and a curse”. While its strength was positive for the audit business, Di Sibio said it was also “negative” because it meant that conflict of interest regulations prevented EY from partnering to work alongside some of the world’s largest technology companies on projects for its other clients.
These links between professional services and technology groups are key to winning lucrative consulting contracts to help corporate clients with projects such as upgrading IT systems to manage supply chains and other operations so they can operate in the cloud.
When EY committed to maintaining its audit and advisory operations nearly a decade ago, it had not foreseen how relevant cloud technology and partnerships with technology companies would become, Di Sibio said. Over time, the independent advisory business would earn $5bn to $10bn a year in consulting fees that are currently “off the table” because conflict rules prevent it from working alongside Amazon or Salesforce, he added.
Independence of the advisory arm would allow the audit business to bid for more mandates and expand more quickly as it rebuilds its advisory operations, Di Sibio said. Di Sibio also said it was inevitable that the big four accounting firms (formed alongside Deloitte, KPMG and PwC) would eventually split their businesses. “As these firms get bigger, conflicts become more complicated to manage,” he said.
Carmine Di Sibio – EY Global Chairman and CEO
EY’s global executives are meeting this week and the company has yet to make a final decision on whether to go ahead with the split, which would be the biggest reorganisation of the accounting industry in two decades. “It would be the biggest reorganisation in the industry in two decades,” Di Sibio said. He said he expected a decision “in the next two weeks or so”. The partners of each of EY’s member firms will then vote on the split, probably in October or November, he added. Splitting the business before a capital markets transaction was “plan A”, he said, adding that an initial public offering was unlikely before autumn 2023 if the company opted to go public.
The interest of private equity groups in the sector was another factor in the conflict of interest, Di Sibio said. EY had established an alliance with technology company Anaplan, but the deal fell apart when it was bought by private equity firm Thoma Bravo this year. “The alliance we had created simply disappeared because we audited parts of Thoma Bravo,” Di Sibio said, adding that the partnership would have been worth at least $200m a year to EY. “That happened two or three times (with different partnerships) and created an even bigger problem,” he said.
Di Sibio also said it was inevitable that the big four accounting firms (formed alongside Deloitte, KPMG and PwC) would eventually split their businesses. “As these firms get bigger, conflicts become more and more complicated to manage,” he said.