Deloitte To Split Audit and Consulting

The Wall Street Journal reported that Deloitte is in the process of splitting it’s Audit and Consulting business.

Of course this could lead to a spin off of the consulting business that could go public. Deloitte is reportedly already in talks with Goldman Sachs about the restructuring.

An IPO of the consulting arm would be immense. Deloitte’s consulting and tax businesses between them generated close to $40 billion of revenue globally in the year that ended in May 2021. If you put a 3X multiple on that revenue figure you get a $120 billion valuation. By contrast, the audit team only generated $10.5 billion from its audit work.

Another major reason for the restructuring is to avoid conflicts of interest between the two groups.

“Regulators world-wide have been increasingly concerned about conflicts of interest—whether auditors, which are supposed to scrutinize a company’s books, will go easy on clients that buy lucrative consulting services from them. In the U.S., the Securities and Exchange Commission is investigating potential breaches of independence rules by the Big Four, The Wall Street Journal has previously reported.”

The key question appears to be how much money the spin off could generate for the audit partners. If the windfall is lucrative enough, the audit partners would approve it. However, given the weak IPO market in 2022, it is unknown whether the consulting business would attract a valuation that entice the partners to vote on the spinoff.