After a New York crisis meeting, EY’s radical plan to seperate its consulting and audit businesses was in danger of falling apart.
On Wednesday evening, senior partners of the Big Four’s US offices met and were informed that Project Everest, the demerger process internally known as Project Everest would be halted while specialist teams attempt to resolve conflicts between different factions. It was described as “a pause to eventually move forward” by them.
According to EY, UK partners have been summoned today to participate in a call where they will be informed of the latest developments.
Partners who were expecting to vote next month on the plans will meet again in a few weeks to determine if a resolution has been reached.
One UK partner stated that there is still a “clear intention from all to complete the deal”. Another partner stated that “something has to happen” but was not as certain of a split as he was one year ago. It’s probably not.
EY spokeswoman said that the company is in dialogue with large EY member companies to decide the final form of the transaction.
“This transaction is complex, and will be the road map for the reshaping of the profession. It is therefore important that we get it right. We are still committed to Project Everest’s strategic rationale and believe that a deal is possible and should be made.
EY announced its intention to separate itself in May 2012. EY believed that the rapid-growing consulting company, which was free from conflict of interest in the audit arm, would be able to turbocharge its growth.
EY’s global chair and chief executive Carmine Di Sibio is based in the US. She has led the push to demerger and estimated that a split could net the consulting firm up to $10 million in additional fees. EY audits large technology companies like Google, Amazon and Salesforce.
Separating the businesses proved to be difficult. There were internal disagreements about which teams should be transferred to which business. What payouts should partners in the audit firm receive? Who will lose out on the growth of consulting arms? And what share should retired partners get, if any.
The downturn in equity and debt markets since the original pitch has complicated matters further.
The consulting division, which will now be renamed, intends to apply for a stock exchange listing. EY’s top bosses believed that the consulting business was worth more than it is currently valued.
With each delay, speculation has grown about whether or not the demerger will proceed. However, EY partners claim that it is impossible to rescind the entire idea now that it has been discussed.
Deloitte and KPMG, which are rivals to EY, have not followed suit and publicly lauded the multi-disciplinary model’s benefits.