This EY Split Thing is Going to Be Responsible For a Lot of Dinners and Golfing in the Year Ahead

The EY split is yet to be official — that should come late next year after a vote in a few months — but technology consultants that would have to go up against “the competitive edge” of a liberated EY consulting house for clients should get to work now if they want to stand out and win the work according to research by Gartner.

Australian Financial Review:

Technology consultants need to brace for the competitive edge a standalone EY consulting outfit would have should the big four firm go ahead with its proposed split of its audit and advisory arms, new research warns.

Smaller technology advisors should prepare for this risk by considering acquisitions, mergers or partnerships with the potential new EY, the paper by global IT research giant Gartner said.

They should also target existing and new clients “immediately”, Gartner continued, and “open communication pathways” with EY even if “relationships have been limited in the past.

Gartner’s vice president of research, Chrissy Healey, said that this advice is directed at “big players” like PwC and KPMG (look, I’m just quoting the article OK) as well as mid-sized audit and consulting firms.

”EY has differentiated and global expertise in a few areas where it will likely gain business – [mergers and acquisitions] strategy and transactions, employee experience and mobility, legal consulting and managed services, supply chain, risk, blockchain, and cyber,” she said.

“It has breadth in data and analytics and a strong SAP practice. These are the most likely services that firms that currently do not work with EY in a consulting capacity are likely to seek out.”

Technology consultants needed to target existing and new clients who were audited by EY or had major accounts with the professional services giant to cement their relationships with them, Gartner recommended.

This sentiment contradicts earlier comments that EY is going to have difficulty competing in the consulting space at least to start as that market is “very crowded” and NewCo will need a lot of money and a lot of people to get off the ground. We can assume EY’s first order of business after the split (after they come up with a better name than NewCo, that is) will be to hit up audit clients once they are liberated from the independence rules that have prevented them from taking on $10 billion a year of that business.

Gartner’s vice president of research says that shouldn’t be a problem.

“The fact that the firm could be a dedicated consulting firm allows EY to do a few things differently than it is able to do with its current restrictions as an audit firm,” Ms Healey said.

Critically, this meant it could compete with other technology firms. This included firms it currently audited, and players in niche markets where EY now had limited access because of the potential for audit restrictions.

Clients wanted their advisers to be able to “act as part of a broader ecosystem” and collaborate with other tech firms, she said, and EY could do this once it did not have to avoid working with audit clients.

The report does mention that if the “demerged” firm takes on too much debt it would hamper NewCo’s ability to invest in the technology that will ultimately help score clients. This could lead to “operational disruption” in both the audit and consulting arms, it said.

Much of these grand plans for an independent EY consulting house hinge on having the people to pull it off; for the moment we’re seeing new and experienced hires alike asking questions about how it will work and if they’ll have the same career mobility they could have at a combined firm. At least two years of “operational disruption” seems about right unless EY starts answering some of those questions. As of right now anyway, partners are saying “we don’t really know.”