The proposal, known as Project Everest, involves splitting the company into an audit arm, known as “AssureCo” in company planning documents, and a consulting arm, “NewCo.”
AssureCo would retain the EY brand and be 100% owned by the partners who remain in that business. It would start operating independently with estimated revenue of $18 billion and expected growth of around 7% a year, according to reports from previous models of the division.
NewCo, operating under a new brand, would start operations with revenues of $24 billion and be a new corporate entity majority owned by EY partners moving into the new independent advisory business. It would target double-digit percentage growth and would be listed on the stock market, with about 75 percent of the shares held by consulting partners.
Strong financial incentives to approve the spin-off
The firm has cited a variety of reasons for continuing the split, including easing restrictions on obtaining consulting work with its audit clients and entering into managed services partnerships with the Silicon Valley companies it audits, such as Amazon, Google , Oracle, Salesforce and Workday. .
Rival firms Deloitte, KPMG and PwC have said they remain committed to their multidisciplinary model.
EY’s 13,000 partners will have a strong financial incentive to pass the split plan, and the rewards will be more immediate for audit partners.
Modeling of the split reported in June showed that EY audit partners could be in line for a typical cash payout of $2 million ($2.8 million), while consulting partners could receive shares in a newly launched advisory company by a value of up to $8 million, accessible for five years. years.
Consulting partners have also been told they could cut their cash salary by as much as 40 percent as part of cost reductions if they split into an independent company. This would be offset by consulting partners receiving shares worth seven to nine times their annual income, estimated at up to $8 million.
This structure means that the big winners in any division will be the partners, while those close to the partnership face a more uncertain future. Staff will also face uncertainty if the split goes ahead, with teams such as tax to be split between the two companies.
The firm is concerned that the cash payment to the audit partners is so large that the firm will have a hard time keeping them with the firm if the transaction goes ahead. The Australian Financial Review There has already been talk of audit partners exploring opportunities with rival firms, but would only move after being paid in cash.