The big four audit firm KPMG has entered exclusive talks to sell its pensions advisory unit to a buyout firm as it reshapes its business amid growing pressure on the profession.
Daily Week News has learnt that KPMG is in advanced negotiations about a sale of the division to Exponent Private Equity, which has previously backed companies including Quorn, the meat-free food brand, and Loch Lomond Distillery, the whisky producer.
Sources said on Wednesday that Exponent was in talks to buy the business, which advises clients on the management of pension assets worth over £50bn, for in excess of £200m.
The division is one of KPMG’s largest and most profitable advisory operations, and has about 20 UK-based partners working for it.
In total, it employs about 450 people.
Talks about a sale of the pensions arm have been taking place since June, and a number of other financial and trade bidders submitted offers for it, according to people close to the process.
Exponent’s investments have included the meat-free Quorn brand
News of the exclusive discussions with Exponent comes just days after KPMG’s UK chairman, Bill Michael, informed the firm’s UK partners that their average pay fell by nearly 10% to £629,000 last year.
The decline was prompted in part by a slew of regulatory fines imposed over audit failings and by the mounting cost of reform as pressure builds on the big four for a full separation of their audit and consulting practices.
Without the inclusion of prior years’ distributable earnings, the average figure was around £550,000, a memo from Mr Michael said, compared to £601,000 in 2018.
Last year, KPMG was fined approximately £18m by the soon-to-be-disbanded Financial Reporting Council (FRC) over flawed audits involving companies such as the Co-operative Bank and BNY Mellon.
Mr Michael added that £45m of investment in its audit practice, including the recruitment of 800 additional auditors “to improve quality and strengthen our business”, had been funded from the year’s earnings.
“Expectations of audit continue to evolve; our sector faces the prospect of fundamental technological disruption and the structure of our firms and markets are in the process of being completely redrawn by our regulators,” Mr Michael told partners in his memo last week.
The KPMG chief has placed his firm in the vanguard of change, announcing late last year that it would cease all but essential non-audit work for the FTSE-350 companies whose accounts it audits.
Mr Michael said the decision to end non-audit work for audit clients had “cost us a number of multi-year consulting projects and [has] had an impact on our tax and pension business,” underlining one of the reasons for deciding to sell the latter business.
Offloading the pensions arm would underline the complexities that the big four auditors – Deloitte, EY, KPMG and PwC – are seeking to navigate amid pressure from regulators to reform their profession.
The collapse of large companies including BHS and Carillion has increased the intensity of the spotlight on the audit profession, prompting the former business secretary, Greg Clark, to outline plans to scrap the FRC and replace it with a new body: the Audit, Reporting and Governance Authority.
Mr Clark’s successor, Andrea Leadsom, has promised to pursue the reforms, although the government was criticised last week by Sir John Kingman, the architect of the regulatory shake-up, for failing to include the necessary legislation in the Queen’s Speech.
Rachel Reeves, the chair of the Commons business select committee, lambasted the audit profession on Tuesday when Thomas Cook’s former auditors gave evidence about their scrutiny of the collapsed travel group’s books.
In a statement issued in response to an enquiry from Daily Week News, a KPMG spokesperson said: “Following significant interest in our market-leading pensions practice, we can confirm we have entered into exclusive talks with Exponent with a view to progressing a sale.
“We will not comment further while negotiations remain ongoing.”
KPMG declined to comment on the price under discussion, while Exponent could not be reached for comment.