Sunday 19 January 2020 7:22 pm

Exclusive: EY plans major private equity push as audit reform looms over sector

Big Four firm EY is planning a major private equity push as it grapples with potential regulatory changes that could dramatically alter the face of the firm, City A.M. can reveal.

Its transaction advisory division is understood to be looking to boost its capabilities in the private equity sector, with the goal of winning more lucrative private equity sell-side mandates.

Options being examined include redirecting current partners to focus on securing sell-side appointments and bringing in new partners to increase the team’s firepower. 

The potential expansion is being looked at as a long-term play, with some of the major deals the firm is hoping to win expected to come to fruition in two-to-three years’ time.

The firm is also looking at strengthening its deal origination functions, with sectors such as energy, technology, media and telecoms, and life sciences earmarked for investment to help the firm win roles on more transactions.

One of the reasons for the planned expansion is understood to be impending government reforms that could lead to the advisory businesses of the Big Four firms being split from their audit arms.

However, a source close to EY denied that audit reform had influenced the firm’s private equity expansion plans.

An EY spokesperson said: “EY’s private equity practice continues to grow, as does private equity as an investment class. Like any well-run business, we are always looking to attract and retain the best talent to support our growth and best serve our clients’ needs.”

The planned overhaul of the firm’s private equity practice comes at an uncertain time for EY and the Big Four.

Last week, EY announced that its UK and Ireland chair and managing partner Steve Varley was leaving his latter role to take up a new post as global vice chair for sustainability.

The move kicks off a process to replace him as managing partner which is set to conclude next month.

More broadly, the Big Four firms are braced for potential legislation that could introduce a split between their advisory and audit divisions.

Last April, the Competition and Markets Authority recommended the introduction of an operational split between the audit and advisory arms of the Big Four to reduce conflicts of interest.

In December, a review by City grandee Sir Donald Brydon called for the creation of a standalone audit profession to rebuild confidence in the sector following scandals such as the failures of travel company Thomas Cook, department store BHS and outsourcer Carillion.

EY is being investigated by regulator the Financial Reporting Council (FRC) in connection with its audits of Thomas Cook in 2017 and 2018.

Average partner pay at EY fell to £679,000 last year, from £693,000 the year previously.

Revenue grew 1.5 per cent to £2.45bn, up from £2.41bn the previous year.