EY builds £2bn war chest to fund M&A spree for newly-separated consulting arm

EY is creating a $2.5bn war chest to finance acquisitions of consulting businesses as it pushes ahead with plans to spin off its advisory arm into an entirely separate firm.

The Big Four accounting firm is setting aside a sum of $2.5bn (£2.07bn) to fund an M&A spree for its newly-separated consulting arm, with a view to doubling the pace of its dealmaking, the Financial Times reported.

EY’s management have also set aside a further $400m for use in building a brand for the new consulting business, which is set to be floated in New York.

EY confirmed the news when contacted City A.M.

The newly listed company will be entirely separate from EY’s existing audit and assurance business, and will operate under a different name.  

The investment plans seek to ensure EY’s newly-independent consulting business retains its market share, following its split from the rest of the firm.

EY’s newly-spun out consulting arm will in turn be able to make more of any acquisitions, in being free from conflicts-of-interest rules that prevent it from selling advice to audit clients.

The conflict-of-interest rules mean EY currently has to drop any clients obtained through acquisitions, if they are audited by EY’s assurance business.

The situation means any business acquired by EY loses around 25 per cent of its revenues after being picked up, EY’s global managing partner Andy Baldwin told the Financial Times.

The Big Four firm’s partnership model and wider struggles in raising cash have also prevented EY from making large-scale acquisitions in the past.

Any potential IPO will, however, give EY a new means of raising funds, which it will able to use to bankroll its own expansion.

EY’s efforts to build its multi-billion-dollar war chest come as the Big Four firm pushes forwards with plans to let its partners vote on the global split decision.

The Big Four firm previously pushed back its schedule for the partner ballots, which were initially set to start in the largest markets at the end of 2022.

The accounting firm is however adamant that voting will conclude in “early 2023,” the firm previously told City A.M.

EY requires the approval of both its 13,000 global partners and of regulators in each of the markets it operates in, in order to complete its global split.

The firm’s Israeli and Greater China businesses have already opted out of the firm’s global split plans, which will instead retain their current structures.

EY had initially expected that the largest 70-75 of its 150 country businesses will participate in the split.