EY revenues hit record $ 45bn as firm plans break-up

EY reported record annual revenues of $ 45.4bn as its 13,000 partners prepare to vote on a break-up of the Big Four accounting firm in what would be the industry’s most radical overhaul in two decades.

Global revenues climbed by almost 14 per cent in the year to June, the fastest pace in nearly two decades, while EY’s total headcount jumped 17 per cent to 365,000.

EY’s advisory practices, which offer consulting and deals advice, drove the expansion as companies sought strategies on how to reshape their operations and technology in response to the pandemic.

Revenues in the consulting division increased by 24.5 per cent to $ 13.9bn in the period, outstripping the audit and assurance division where revenues jumped by 6 per cent to $ 14.4bn thanks to higher fees.

The proposed break-up, which partners at EY’s member firms are due to start voting on in November, would see the consulting division split from the audit business.

EY’s bosses believe the consulting business will grow more quickly on its own as it will be unshackled from conflicts of interest rules that prevent it from working for the firm’s audit clients.

TO break-up would also allow the consultants to form potentially lucrative alliances with tech groups such as Amazon, Google and Salesforce, which are currently off-limits because EY audits them. Carmine Di Sibio, global chair and chief executive, said in July that such partnerships could help EY to win up to $ 10bn a year in extra fees in the long run.

Revenues at the tax department, most of which would be spun off as part of the advisory business if the planned split goes ahead, grew 7.9 per cent to $ 11.3bn. Advisers in the strategy and transactions team, which are not included in the consulting division, increased sales by more than a fifth to $ 5.9bn.

Sales in the Americas, EY’s largest region, were up more than 19 per cent, about double the growth of any other area.

The Big Four firms do not disclose their global profits but EY would be required to publish detailed financial information for its advisory arm ahead of a planned IPO of the business next year.

Under the planned split, its standalone advisory business would begin with revenues of $ 25bn and ebitda of $ 4.4bn, according to figures shared with partners last week. Advisory partners would be awarded shares in the new businesses but would be forced to take hefty pay cuts.

The audit and assurance division, which is expected to keep the EY brand, would remain structured as a partnership after the spin-off of its advisory practices. Some experts in tax, valuations and other disciplines would be retained to help with audits.

Audit partners would receive cash windfalls to compensate them for parting ways with the consultants.

In the past year, EY won audit mandates from companies such as BNP Paribas and Canadian Pacific Railway. It retained its position at Deutsche Bank despite the fallout from its auditing of another German financial services company Wirecard, which collapsed in a fraud scandal.

Companies tendering for a new auditor will be faced with a choice between EY’s slimmed down audit practice and the other Big Four firms – Deloitte, KPMG and PwC – which have said they believe combining their audit and advisory practices is better for clients.

EY remains the third-largest of the Big Four consultancies, ahead of KPMG but behind Deloitte and PwC. Deloitte lifted its revenues by almost a fifth to $ 59.3bn in the 12 months to May while PwC’s boss told the Financial Times in July that he expected it would report sales of about $ 50bn for its most recent financial year.

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