EY rejects TPG plan to break up Big Four firm

EY is being offered yet another chance to break itself up. On Monday, the Financial Times reported that private equity firm TPG had approached EY about buying a stake in its consulting arm. The approach came just four months after the audit giant cancelled a plan to split itself in two, having failed to win over its U.S. partners.

 TPG’s offer, which the FT says did not include a valuation, highlights the enduring appeal for Big Four firms of separating their auditing and consulting units. Partners in the latter arm hope they will be able to service more clients, once they no longer have to worry about conflicts with groups they audit. But a split now looks just as tricky

For starters, the timing looks less than optimal. Back in May of last year when EY’s split was leaked to the press, valuations were much more attractive. Capgemini (CAPP.PA), a $30 billion rival consulting business, was trading at nearly 18 times its forward earnings, compared to just 13 times today, Refinitiv data shows. 

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Tax also remains a stumbling block. If TPG pushes for a full breakup, EY would still have to work out how to divvy up its tax advice business between audit and consulting. That raises the risk either or both may be less able to offer clients the prized service of lowering their tax bills, hurting future growth.

 Given the challenges, EY may well decide it’s better to soldier on with an awkward marriage than risk a messy divorce. 

 Source: Reuters

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