Deloitte UK has been forced to drop plans to sell its restructuring practice after its global parent company vetoed the disposal on the grounds that it could have an adverse impact on the rest of the firm, according to three people with knowledge of the matter.
The Big Four accounting firm held a call with senior members of its restructuring and insolvency unit just two weeks ago to discuss approaching potential buyers, including rival professional services firms and private equity houses.
The proposed sale was expected to bring in hundreds of millions of pounds that would have mitigated a drop-off in some consulting work during the pandemic. It would also have reduced the risk of conflicts of interest for restructuring partners whose attempts to pick up work have sometimes been thwarted by the firm’s audit relationships.
However, Deloitte Global, which manages the organisation’s network of firms around the world, declined to give its approval to the UK firm’s plan to spin off restructuring, according to three people close to the matter. Deloitte Global claimed a sale could negatively affect its global restructuring network and its tax and consulting teams who regularly use its restructuring experts or cross-sell restructuring advice to clients.
“The proposed transaction was already dividing opinion among Deloitte partners,” said one individual. “UK restructuring businesses in all the Big Four are the biggest in the global network and drive most of the innovation and management.”
A second person close to the matter said: “The feeling from Global is that there is a lot more value in restructuring being part of the firm than it being a business unit by itself.”
Deloitte declined to comment.
Deloitte’s UK restructuring unit employs about 350 people and 20 partners. It has benefited from a surge in corporate insolvencies and financial planning among companies hit by the economic fallout from coronavirus. Deloitte partners have recently been appointed as administrators to retailers including Oasis and Warehouse and Victoria’s Secret.
The plan to sell the division highlighted pressure on Deloitte and its largest rivals PwC, EY and KPMG to manage conflicts of interest after corporate failures and accounting scandals called into question the quality of their audits and the independence of their advice.
Last year the Financial Reporting Council, which supervises the audit profession, tightened the rules around what services the industry could provide to listed companies and financial institutions in an effort to strengthen auditor independence.
KPMG restructuring partners have also held talks about a potential management buyout in recent years. KPMG spun out its pensions advisory business after its partners said that the conflicts of working in a large multidisciplinary accounting and advisory firm were stifling its expansion.
Deloitte’s restructuring business caused the firm a reputational setback this year after it was fined £1m for a lack of independence in its work on the insolvency of British electronics retailer Comet.
This week, Deloitte Global reported a 5.5 per cent rise in annual revenues to $47.6bn, sealing its place as the world’s largest accounting firm.