Save content
Have you found this content useful? Use the button above to save it to your profile.
EY's plan to break up the firm was dubbed Project Everest.
istock_Everest_Arsgera

EY drops plans to break up firm

by

EY has called off plans to split the Big Four firm’s consulting and audit businesses following pushback from the US executive committee. Following the collapse of Project Everest, EY UK is preparing to reduce costs and to staff departures. 

12th Apr 2023
Save content
Have you found this content useful? Use the button above to save it to your profile.

EY’s global executive team confirmed to partners yesterday that it is “stopping work on the project” to break up the Big Four firm. 

Dubbed internally as Project Everest, the Big Four firm would have spun off its consulting and audit arms into two separate businesses, but there had been growing discontent from US executives around the split of the tax practice. 

Work stopped on Project Everest

In a letter sent to partners, the global executive team stated: “We have been informed that the US executive committee has decided not to move forward with the design of Project Everest. Given the strategic importance of the US member firm to Project Everest, we are stopping work on the project.”

The global executives continued that it “remains committed to moving forward with creating two world-class organisations that further advance audit quality, independence and client choice. However, we have been informed that the US executive committee has decided not to move forward with the design of Project Everest.”

The global executive went on to acknowledge the challenges of separating some of the business “in a way that gives both organisations the capabilities they need to compete in the market effectively”. 

Is Project Everest unclimbable? 

While today’s announcement sees the global executive team tumble further away from the summit of Project Everest, they still haven’t abandoned plans completely.  

Acknowledging the uphill struggle of the project, the note said: “We also recognise that we need more time to make the necessary investments to prepare the businesses for a separation.”

Indeed, the note expressed how the global executives will now consider how the separation would serve the interests of the business, enhance client service, test any interdependencies and ensure both organisations would have the right capabilities. “In addition, any separation plan must further enhance audit quality,” the note said. 

But as a sign the global executive team isn’t completely giving up on the idea, the note added, “We believe the organisation must have the strategic flexibility to execute a new transaction in the future.”

But for now, EY said its priorities are EY clients, people and businesses and driving long-term value for stakeholders. 

Concluding the note to partners, the global executive team said: “We always knew Project Everest would be a challenging journey; we have listened to the views of the partners globally as we have shaped this path forward.”

What now?

As a result of the plans being mothballed, the US executive committee who put the brakes on the project and the global executives will begin “taking actions based on what we have learned from the work done over the past year – actions that will both benefit our businesses today and better prepare us for a new transaction.”

According to the Financial Times, EY US announced shortly after the collapse of the plans that it is set to roll out a $500m cost-savings programme. 

EY UK will have its own cost-cutting plan too. As reported first by the Financial TimesEY UK is gearing up to reduce costs and and inefficiencies in their business in the new financial year which starts in July. The UK managing partner Anna Anthony also revealed on the call with partners on Wednesday that she was feeling "disappointed and embarrassed" by the collapse, while the UK chair Hywel Ball told partners on the same call to prepare for a "bit of a rough period".   

EY has sunk millions into the project and had already earmarked a billion-dollar war chest for the new consulting business to go on an acquisition spree. Carmine Di Sibio, EY’s global chairman and CEO, had pushed forward the project, but it was becoming more difficult to win over the hearts and minds of the 13,000 partners worldwide. It remains to be seen where the collapse of the deal leaves Di Sibio. 

The internal resistance was becoming apparent after voting on the project was pushed back at the end of last year and the tug of war over the percentage each separate business claimed of the tax practice led to reports last month that the project had been paused.

EY UK was more open-minded about the prospect of the split than its US counterparts. EY UK's Ball said at the publication of the firm’s annual results that the rationale for the separation was “compelling” and that it is “important that we continue to adapt”. He also noted that the firm’s long-term investments well positioned EY UK to take on the complexity of the project. 

The original plan to create a breakaway audit business would have removed any conflicts of interest from EY’s audit and advisory services and by doing so would have been the biggest shake-up in the profession since Arthur Andersen’s demise two decades ago.

Editor's note: This article was updated on 13 April to include details about EY UK's impending cost-cutting plans. 

Tags:

Replies (1)

Please login or register to join the discussion.

avatar
By Hugo Fair
12th Apr 2023 12:50

This never was about removing "any conflicts of interest from EY’s audit and advisory services" ... it was an opportunistic throw of the dice in the 'game' of maximising the return for partners (which remains the only game in town for all the participants - no doubt to the detriment of non-partners).

Thanks (2)