EY’s top executives have decided to split its audit and advisory businesses into two separate firms.

The split represents a major development for the consulting sector. EY is one of the world’s largest consulting firms with 312,000 employees, a market presence that spans more than 150 countries and $45 billion in annual revenue.

More than a century in business

EY grew into one of the world’s largest consulting firms through a series of corporate mergers that unfolded over more than a century. 

EY traces the first letter of its name to Ernst & Ernst, an accounting firm that was founded out of Cleveland in 1906. The Y in EY comes from Arthur Young & Co, an accounting firm that launched 3 years later.

Arthur Young & Co and Ernst & Ernst both went on to become major industry players. They merged into a single company, the modern-day EY, in 1989.

EY went to acquire numerous other players in the accounting market and the broader advisory sector, expanding into new industries along the way. At one point, the firm considered merging with fellow Big Four member KPMG, but the acquisition was called off due to a combination of sticker shock, regulatory scrutiny and pressure from clients.

A historic split

EY is not a company in the traditional sense, but rather a network of firms that operate as separate legal entities. The heads of the 15 largest firms in the EY network are leading the push to split the audit and accounting businesses.  

For the split to go ahead, it will have to be approved by EY partners in the 30 countries where the consulting giant generates the most revenue. Regulators will also have to sign off on the transaction.

Lucrative move

Financial regulators bar EY’s advisory business from working with companies that are clients of its audit business. Spinning off the two businesses into separate firms would remove this limitation, unlocking new revenue streams.

EY estimates that the split would enable its advisory business to go after $10 billion worth of deals it currently can’t compete for.

EY partners also stand to benefit from the split. 

Media reports indicate that partners in EY’s audit business stand to receive a multimillion-dollar windfall if the move goes through. Partners at the firm’s consulting business, in turn, will receive a significant number of new shares. 

The payouts will be financed through a plan that will see EY’s advisory business go public. It’s estimated that the listing could raise as much as $10 billion.

EY has hired JPMorgan Chase and Goldman Sachs Group to manage the blockbuster IPO. The listing is tentatively on track to take place in the second half of 2023. 

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