EY decision to junk split lifts cloud over India Ops

EY's decision to not split its audit and consulting units globally has ended months of uncertainty at its India business, but left many of its more than 600 partners here disappointed as they were expecting a significant financial upside from the proposed division.

An EY India partner confirmed receiving an email that late Tuesday communicated the decision to abandon the project that proposed splitting the two revenue streams.

As per the partners' email reviewed by ET, EY US has decided to abandon "Project Everest," the internal name given to the project.

After their rejection, the global leadership deemed it fit to drop the split plan. The US firm contributed about 40% to the firm's global revenues.

"We have been informed that the US Executive Committee has decided not to move forward with the design of Project Everest," read the mail. "Given the strategic importance of the US member firm to Project Everest, we are stopping work on the project."

That something big was brewing at the HQ was clear to Indian partners after Carmine De Sibio, chairman and CEO, cancelled his two-day India trip last Friday.

The EY Chairman was to spend two days in India mid-week meeting with partners in Mumbai to update them on the project's status while also visiting the EY development centre in Bengaluru.

Following the receipt of the email, the 600+ partners were left disappointed, as the windfall they had been eagerly anticipating following the listing of the advisory business and settlement of the audit business would no longer materialise. In comparison to other regions, the India partnership had negotiated a much more favourable deal, and most partners were expecting significant payouts.

Big Deal for Partners

As per the terms of the deal, Indian advisory partners were to receive 10 to 12 times their annual earnings, while audit partners were promised up to four times their annual compensation. Additionally, Indian employees who became partners in FY22 were included in the final deal. This was largely due to EY India's nearly 40% year-on-year growth in FY22, which was one of the fastest in the firm's universe.

Experts said that had EY split in India, the firm would have suffered a dent in its market heft as the audit business allowed it to forge deep relationships with boards and managements, especially in promoter-driven companies, and also a connection with regulators.

MARKET LEADER

Unlike other geographies, EY is the market leader in both audit and consulting among the top four professional services firms in India.

The tax business employees were the most relieved, as the proposed split would have resulted in the division of the vertical into two parts, requiring a certain number of tax partners and employees to shift to the audit side. In addition, tax advisors were worried about how tax services would fit into a firm that intended to follow the Accenture model, as no major consulting firm offers tax advisory services.

EY is also the market leader in tax services in India, with a business worth approximately ₹1,800 crore.

"While the scrapping of the split might create some short-term hiccups for the firm, it will make EY stronger in the long term," said a competitor on condition of anonymity.

In FY 22, EY India became the first professional services firm in the country to cross a billion dollars in revenue.

After the Covid-19 pandemic, EY has grown 7-10% faster than its competitors, as demand for services took off after economic activity resumed and tech-led services were much sought after.