EY’s Refusal of TPG Offer Resuscitates Break Up Enthusiasm

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Last year, EY faced discussions about splitting its consultancy from its audit business, and while the proposal did not go through, it set things in motion. Recently, private equity group TPG expressed interest in buying a stake in EY’s consultancy arm. However, EY declined the offer.

TPG’s interest in the deal was understandable, considering private equity funds globally have around $2.1tn available for investment, as reported by Preqin. Yet, EY’s consultancy arm is valued at approximately $100bn, which is 23 times its earnings before interest, taxes, depreciation, and amortization (ebitda) from last year. In contrast, TPG manages only $137bn.

EY is currently facing challenges, as the firm abandoned its plan to separate its consultancy and audit practices, known as Project Everest. The retirement of CEO Carmine Di Sibio, who supported the project, without a replacement further adds to the difficulties.

Despite these obstacles, the interest in a split persists. EY originally sought the separation to avoid conflicts of interest with clients and raise capital to address the deficit in the US business pension fund.

It comes as no surprise that TPG approached EY, as private financiers are attracted to the asset-light, cash flow generating nature of professional services groups. Partners within global audit and consultancy firms, especially those nearing retirement, might also consider selling their interests.

Although the deals in this area have not been substantial thus far, there have been notable transactions. This includes Apollo’s $1.3bn private debt deal with BDO USA and CVC’s acquisition of Teneo, a public relations and advisory consultancy. Private equity firms like CVC have a track record of successful investments, having already earned substantial returns on previous ventures.

EY must appoint a new leader before entertaining external proposals. However, it is likely that private equity firms will continue to show interest, and the momentum for a potential break-up is expected to endure.

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