Deloitte Global vetoes plans to sell UK restructuring unit
The prospective sale of Deloitte UK’s restructuring unit has been torpedoed by the Big Four firm’s global leadership. Reports in the British media had indicated that Deloitte had commenced secret talks mooting the sale of its UK restructuring division, which could have resulted in a deal worth “several hundred million pounds.”
Led by Daniel Butters, Deloitte’s UK restructuring business handles insolvencies, which can generate fees for individual mandates running into millions of pounds, along with other forms of corporate restructuring and accelerated sale processes. The unit employs a total of 350 people, including 30 partners, and amid the global economic downturn and coronavirus pandemic, it has seen business booming in recent months.
In 2020, the wing has been engaged to oversee company voluntary arrangements for high street chains including New Look, and has won roles as administrator to fashion brand Victoria's Secret UK and sportswear retailer Go Outdoors, among others. In spite of the heightened demand experienced by the restructuring wing, however, early September saw Deloitte reported as mooting a sale of the division.
The rumours stemmed followed sustained pressure on the UK’s largest audit and advisory firms from the nation’s audit watchdog the Financial Reporting Council (FRC), which effectively banned the foursome from conducting advisory work for audit clients in the wake of a number of accounting scandals. With the FRC implementing a new model known as operational separation to segregate the two aspects of the businesses, many in the Big Four firms felt the conflicts issue would inhibit the future growth of restructuring operations for as long as they are owned by them – leading them to consider cashing out.
Most notably, rumours circulated in 2018 that KPMG was set to offload its corporate turnaround wing. However, the firm’s British leadership eventually announced it was keen to hang on to the major fee-earning operation, amid already booming demand in the UK. Now, the same has occurred with Deloitte, as while the firm's UK management – led by CEO Richard Houston – had concluded that offloading the restructuring arm now would allow the firm to optimise its value, its global leadership has vetoed any such move.
Reports in the British press stated that Deloitte UK’s global parent company vetoed the disposal of its restructuring unit 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, while 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, 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.
Deloitte itself declined to comment, but one source said that the proposed transaction “was already dividing opinion among Deloitte partners” as the UK restructuring businesses in all the Big Four are the biggest in the global network “and drive most of the innovation and management.” Another source meanwhile added, that the feeling from Deloitte Global was that “there is a lot more value in restructuring being part of the firm than it being a business unit by itself.”
Deloitte’s restructuring business might have caused the firm a reputational setback earlier in the year then – it was fined £1 million for a lack of independence in its work on the insolvency of British electronics retailer Comet – but as the recession and pandemic continue to bite, Deloitte Global clearly sees it as an important revenue stream at present. During the summer alone, Deloitte shed thousands of staff globally, as it looked to consolidate its bottom line amid the Covid-19 lockdown.
