EY rejects TPG plan to break up Big Four firm

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EY has rejected a proposal from US private equity group TPG to break up the Big Four firm and take a stake in its consulting business, according to a statement sent to partners on Wednesday.

TPG wrote to EY in late July outlining its plan for a debt-and-equity deal to separate its consulting arm from the audit business. The pitch came just months after the collapse of EY’s own attempt to spin off the consulting business and seek a $100bn enterprise value for it in a stock market listing.

The Financial Times on Tuesday revealed the details of the approach, which offered to revive the break-up plan, codenamed Project Everest, in a revised form.

“We frequently receive inquiries from private equity firms and other investors expressing interest in parts of EY businesses. This was the case before Everest and will continue into the future,” partners were told in a note from global chair and chief executive Carmine Di Sibio.

“The TPG approach was a preliminary expression of interest and there has not been further engagement. We are not actively engaging in any transactions,” Di Sibio noted.

TPG’s approach comes as EY attempts to select a replacement for Di Sibio, the driving force behind Everest. After the project unravelled in April, he said he would retire in June next year.

It would be difficult for the firm to commit to pursuing a deal before his successor is chosen, insiders say. Any break-up would also need the backing of EY’s biggest national firms, which are separately owned by the partners in each country. The US leadership opposed Everest in its original form.

A break-up of the firm would represent the biggest overhaul in the accounting profession since the collapse of the US energy company Enron, which put its auditor Arthur Andersen out of business and led other big firms to split off their advisory arms two decades ago.

Proponents of Everest argued that it would allow both sides of EY to grow faster, freed from conflict-of-interest rules put in place after Enron that prevent firms from selling consulting services to their audit clients.

TPG’s proposal attempted to sidestep some of the sticking points that contributed to Everest’s failure.

It told EY that it was open to a larger portion of the tax practice being retained within the audit business. Some US partners had objected to the majority of the tax business being spun off as part of the consulting arm.

The private equity group had also said that its plan offered greater certainty than Everest because it was not subject to the volatility of public markets.

It had added that its proposal would involve less dilution of partners’ existing stakes because a private transaction would enable it to borrow more heavily against the value of the consulting business.

TPG declined to comment.