EY Luxembourg, one of the Big Four accounting and consulting firms, has moved a step closer to splitting its business into separate entities for audit services and for management consultancy. The firm announced on Tuesday that its 65 partners in the grand duchy will decide on the demerger during the first quarter of next year.
The plan is internally known as Project Everest and is part of a major strategic overhaul being prepared at EY worldwide. At a press event, the firm’s Luxembourg partners explained how the project, which is subject to regulatory approval, may affect its operations. The plan was first announced in November 2021 by the firm’s global partners. Once approved, implementation is foreseen for 2023.
In Luxembourg, “demerging” the audit services will create a new entity that will employ a little over one thousand of its 1.800 employees and that is expected to hold a similar share of the firm’s 325 million euro in annual revenue. The audit services entity will retain the EY brand, while a new brand name is being considered for its management consultancy services.
‘Positive mindset’
Olivier Coekelbergs, country managing partner and CEO Luxembourg, told journalists that by demerging the audit business from management consulting, the firm will be able to take up new opportunities that it cannot chase as long as the two different activities are offered through a single company.
As a result of regulation, companies, in particular multinationals, that use a firm like EY for their accounting services are not permitted to hire the same firm for strategic advice or other types of services. Companies are also required to change audit firms every few years. By splitting off into two separate businesses, these limitations will no longer burden future growth potential and create new opportunities, Coekelbergs explained.
“What we feel here is a positive mindset,” he said.
Speaking informally to journalists on Wednesday, several of EY’s Luxembourg partners said they were excited about the plans, which remain subject to final approval.
Career prospects
If the demerger is approved, EY expects the new entity will need to expand its workforce by approximately 30 percent, especially because support services such as HR, finance and marketing communications will need to be duplicated. Coekelbergs said he expects the demerged firm will be able to provide attractive career prospects for new employees.
“We should be more successful in attracting the right talent as a result of the demerger,” he said.
José Longrée, partner and managed services leader, said that while some staff members may prefer to stay within the comfort zone of continuing the business on the existing basis, it is clear that the current structure places limitations on the firm’s strategic direction. The demerger also means that the firm can focus on developing digital platforms that better match the needs of clients, he said.
“We will be offering an intelligent cockpit to drive their business,” Longrée said. “People will remain our first resource.”
Global IPO seen as an option
Like in Luxembourg, other EY partnerships across the world will also be deciding on a demerger of their national business. Once split off, the audit services eventually will lead to the creation of a single multinational business that may also consider going public as a listed company at a certain moment during the coming years. Some 25 percent of the shares in EY’s audit services could be offered to the public.
EY Luxembourg on Tuesday also reported that its revenue in the fiscal year that ended on 30 June increased to 325 million euro, up 12.3 percent from the previous fiscal year. Coekelbergs said the increase reflected growth in the market as well as an increase in market share in the Luxembourg professional services market.
The assurance practice at EY showed growth of 11.1 percent, while revenues from consulting services rose 26 percent. Revenue from EU’s tax practices rose 9 percent, while its strategy and transactions business expanded by 44.2 percent, buoyed by a supportive M&A market and valuation services to teh fund industry.
Globally, EY saw revenues of 45.4 billion dollars in the fiscal year ended 30 June, up 16.4 percent, while its total headcount increased 17 percent to 365,399 people. The demerger under Project Everest would create two separate businesses that each have more than 20 billion dollars in sales.