EY is laying out the timeframe and projections for the demerger of a new company, which includes its consulting, tax and legal operations, likely to be listed through an IPO as part of a break-up plan, two sources close told this news service adding that banks are likely to be appointed in February.
The ‘NewCo’, as it has been internally dubbed, is projected to be valued at USD 25bn at the time of separation and listing; EY hopes the valuation to grow to USD 28bn in the first year of trading and balloon to USD 48bn by the end of 2026, according to the sources and documents seen by this news service.
The new vehicle will comprise the company’s consulting, tax and legal operations and will be distinct from “AssureCo”, the traditional audit arm, according to the sources and the documents.
The NewCo will focus on several sectors including healthcare and consumer, industrials and mechanicals, and in smaller part financial services and private equity, according to the documents.
Consulting will account for the majority of the work at more than 60%, with tax and legal at around 33%, the material shows.
One of the sources said the breakup is designed to help tax, consulting and legal partners whose practices were often impacted by conflict of interests with clients that were already working with the audit teams.
The source argued the other practices, especially the legal arm of EY, would have grown much faster without the hurdles presented by conflicts, with audit partners traditionally taking priority in client interactions.
Management has laid out a series of hires that will be pursued once the separation has been carried out, he added.
EY plans for an IPO of the business rather than a straight spin off, said the sources.
A final vote on the separation plans is expected in February in the US which will be followed by votes in other geographies across APAC, confirmed by both sources and the documents.
In February, investment bankers will also be appointed to work on the mechanics of the separation and listing the new company.
The breakup and listing will be finalised in December 2023, according to the same sources and material.
In a statement, a spokesperson for EY said the strategic review of its businesses has progressed, and EY leaders have reached the decision to move forward with partner votes to separate into two distinct, multidisciplinary organizations.
The next steps include ongoing engagement with partners to provide them with more information in advance of the voting process.
"We are moving ahead in a thoughtful and diligent way. This is a very complicated transaction and speed must be balanced with executing well. We are also continuing to focus on serving clients. We still expect voting to conclude early 2023," the spokesperson said.
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