Following Deloitte, KPMG explores sale of restructuring arm

The UK arm of KPMG is reportedly mooting the sale of its restructuring arm, just months after the global leadership of Big Four rival Deloitte vetoed similar efforts in its own British wing. The news comes two years after KPMG last waved away rumours that the professional services giant was set to offload its corporate turnaround operations.

On the back of a number of accounting scandals involving the Big Four, the UK’s audit watchdog of the Financial Reporting Council has effectively banned Deloitte, KPMG, EY and PwC from conducting advisory work for audit clients, and is implementing a new model known as operational separation to segregate the two aspects of the businesses. This has fostered a belief among the Big Four that the conflicts issue will inhibit the growth of restructuring operations for as long as they are owned by them.

As a result, the UK leaders of the Big Four have been exploring their options for the sale of their turnaround practices – despite restructuring currently being one of the bright areas of consulting experiencing a spike in work during 2020. 

Earlier in the year, Deloitte UK briefly flirted with offloading its restructuring business in a deal speculated to generated “hundreds of millions of pounds,” before its global organisation put the brakes on any potential sale.

Now, reports from Sky News have revealed that KPMG is reviewing options for its restructuring division, which comprises dozens of partners. The talks are understood to be being led by executives including Blair Nimmo, even as the coronavirus pandemic's impact on the economy paves the way for a significant improvement in its financial performance.

The review comes hot on the heels of another Sky News revelation, where it alleged that hundreds of Partners at KPMG are braced for reduced payouts, as the firm postpones the release of its annual results.

Notably KPMG went through similar motions in 2018, when rumours circulated that it was set to sell its corporate turnaround wing. Then, 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.

While the option to keep the practice is still very much on the table, speculation is mounting that change is on the cards amid the flagging prospects of the UK economy, and the news that 600 Partners could see their 2020 pay packages reduced by around 25% while wider workforce are primed for "significantly reduced…or no bonuses.”

KPMG has been looking to bolster operations throughout the year, and launched the pensions consultation in July as "part of a broader range of measures to reduce overall costs in FY21 and to protect jobs in an unpredictable economic environment."

There is also a recent precedent for the firm to use the sale of its practices to generate funds, with KPMG having also sold its pensions advisory business to a private equity-backed buyout at the turn of the year – something insiders suggest provides a possible template for a transaction involving its restructuring arm.