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EY’s new consulting firm plans $2.5bn M&A spree

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While the vote on the future of EY still hasn’t been scheduled, plans are already afoot for the consultancy arm spin-off to go on a $2.5bn acquisition spree. 

 

10th Jan 2023
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According to a report in the Financial Times, the new consultancy arm will be armed with a billion-dollar war chest to quickly muscle in on the Big Four’s market share and strike acquisition deals. 

No longer brandishing the recognisable EY branding, the new consulting firm will have to start afresh with a new brand, which is why a further budget of $400m has been put aside for the firm to decouple from the EY name. 

The aim is to plough money into the new consultancy business with the goal of floating the firm on the New York stock exchange.

EY expects that splitting from the audit business would empower the new consultancy arm to acquire firms where clients are being audited by EY, where previously they would have had to terminate relationships with clients. 

In an interview with the FT, Andy Baldwin, EY’s global managing partner for client service said: “Every potential acquisition, on average 25% of the revenue we have to say goodbye to on day two because we audit it,” he said. “We won’t have that conflict any more.”

The new consulting business has its sights set on companies with around $400m in annual revenue.

Rise of the consolidators

The new consultancy firm would be entering the profession at a time when consolidators are sweeping through the profession with Xerinadin, Cooper Parry, Azets and Gravita all rolling out ambitious growth plans on acquisitions. 

The profession has become highly attractive to private equity firms due to the recurring fees and accountancy firms’ proven ability to retain clients, with PwC’s Strategy& finding that the UK SME market spends £9.6bn on accounting services. 

Explaining the attractiveness of the sector for private equity Caroline Plumb, the CEO of Gravita, told AccountingWEB that she expects the result of consolidation will be a constriction of the accounting sector, with only 10 to 20 firms of note focusing on the SME space in 10 to 20 years’ time. 

New firm still hinges on EY partner vote

But before the new consulting business can start bidding for new firms, it still needs to get 13,000 EY partners on board with the plan to split the business. However, the vote that was supposed to have happened at the end of last year for the Big Four firm’s largest markets was pushed back until the end of the first quarter.

While the vote is still in the hands of the partners worldwide, EY’s UK chair Hywel Ball backed the idea of a split of two independent businesses in the firm’s annual results late last year. 

Recording revenues up to 17.2% and fee income increasing to £3.23bn, Ball said: “The strategic rationale for our separation into two leading businesses is compelling. The environment we operate in is changing rapidly and it’s important that we continue to adapt to ensure that we maintain our strong sustainable growth and meet the needs of all our stakeholders,” said Ball. 

The FT reported that over the past nine years, EY has shaken hands on 200 deals. The federated partnership structure has hampered acquisitions but as the plans unveiled this week show, mergers and acquisitions (M&A) will play a huge part in the Big Four firm’s future. 

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By Hugo Fair
10th Jan 2023 15:15

Money chasing money ... it's the same old story (repeated with each new generation).

I'd rather be a seller than a buyer - but thank goodness for all those exit routes opening up!

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