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When partnerships decide to sell their firms into the public markets through an initial public offering, it’s always about the money — even if it isn’t only about the money.
Big Four auditor Ernst & Young LLP’s potential IPO of its consulting activities could trigger stock windfalls of as much as $8 million each for the consulting partners, according to the Financial Times.
Even the partners in the audit firm left behind could get payouts too — averaging about $2 million each, the Wall Street Journal reported.
These numbers reflect the fact that the consulting practice is in large part being handed to its current partners but the audit partners need to approve the deal.
Assuming the split goes ahead, most of the consulting activities (including strategy, deal and tax advice) would cease to belong to distinct national partnerships and become a company whose equity was divided among newly
established shareholders, most of whom would be the current partners on the consultancy side. In time, they could cash in their stock.
The rump businesses — which date back to the early 20th century — would focus on audit
activities and retain the current partnership structure. Ownership would therefore continue to pass down through successive generations of partners, each sharing the annual profits as equity holders while they worked at the firm.
Of course, there are good business reasons for EY to consider a full separation of its audit and consulting practices. Each side would then be free of the potential conflicts of interest that irk regulators when the two sit under one umbrella, so they could operate more freely. Strategically, it makes sense.
But the financial attractions of going public must also exceed the downsides for the partners — disclosure requirements and the loss of the undiluted participation in profits through a partnership. So a lot of stars need to align.
Notably, management consultant McKinsey & Co hasn’t gone public. Perhaps its partners make enough money already without having to cash in the firm.
An EY split creates the challenge of how to share the consultancy equity between the current top echelons.
The newly independent company could have an enterprise value nudging $100 billion. That’s assuming revenue grows from a reported 2022 forecast of $26 billion and margins are at least as good as those of listed peer Accenture Plc, supporting a premium valuation.
—Bloomberg