EY rejected the proposal of US private equity group TPG that would have broken up the Big Four and taken a stake in their consulting business. This was revealed by a Wednesday statement to its partners.
TPG sent EY a letter in late July describing its plan to separate the consulting business from audit. This pitch was made just a few months after EY failed to separate its consulting arm from the audit business.
The details were revealed on Tuesday, and the plan to revive Project Everest – the codename for the project’s breakup – in a revised version was proposed.
We receive many inquiries from private equity companies and other investors who are interested in certain parts of EY’s businesses. Carmine Di Sibio, global chair and chief executives of EY, told partners in a letter that this was the case prior to Everest.
“The TPG proposal was only a preliminary expression and no further engagement has taken place.” Di Sibio stated that we are not currently engaged in any transactions.
TPG is a new approach to as EY tries to find a replacement for Di Sibio who was the driving force behind Everest. He announced his retirement in June of next year after the project went awry in April.
Insiders claim that it would be hard for the company to commit to pursuing an agreement before his successor was chosen. Insiders say that any breakup would need to have the support of EY’s largest national firms. These are owned separately by partners in each country. Everest was opposed by the US leadership in its original form.
The breakup of the company would be the biggest change in the accounting industry since the collapse of Enron’s US energy company, which forced Arthur Andersen to go out of business. Other large firms split their advisory arm two decades ago.
Everest supporters argued that the merger would allow EY’s two sides to grow more quickly, as it would remove conflict of interest rules that were put in place following Enron and prevent companies from selling audit services to their consulting clients.
TPG’s plan aimed to avoid some of the issues that led to Everest’s demise.
It told EY it was ok with a greater portion of tax practice remaining within the auditing business. Some US partners objected to a large portion of the tax practice being spun off into the consulting arm.
Private equity group also stated that their plan was more certain than Everest, as it is not affected by the volatility of the public markets.
It added that a private transaction could allow it to borrow heavily on the value of its consulting business.
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