KPMG close to £400m sale of restructuring arm to HIG

KPMG has entered exclusive talks about a £400m sale of its UK restructuring business in a deal that could be spearheaded by one of the most prominent figures in the UK accountancy profession.

Sky News has learnt that HIG Europe is in detailed negotiations to acquire the business, which will represent the most valuable disposal to date by one of Britain’s big four auditors.

Sources said that the transaction could be announced as early as next week.

John Connolly, a former chairman of Deloitte, is understood to be in talks with HIG about becoming chairman of the new standalone business.

KPMG’s UK restructuring arm has acted as administrator to high-profile casualties of the coronavirus pandemic, including Intu Properties, the shopping centre-owner, and Arcadia Group’s flagship TopShop store in London’s West End.

Three of KPMG’s top restructuring partners in the UK – Blair Nimmo, Will Wright and Mark Raddan – are being lined up to hold senior management roles once the deal completes.

HIG Europe has seen off competition from rival bidders including Epiris and Intermediate Capital Group to secure a period of exclusivity.

The identity of the winning bidder is notable because HIG’s US affiliate, HIG Capital, acquired the bed manufacturer Silentnight in 2011 after a process overseen by KPMG’s restructuring arm.

The deal sparked a regulatory row which has yet to be fully resolved a decade later, with KPMG accused by the Financial Reporting Council of being “hopelessly compromised” after allowing HIG to acquire the business without its £100m pension scheme.

A disciplinary tribunal is due to provide its ruling on the matter shortly.

KPMG’s decision to sell its restructuring arm comes amid pressure on big four firms to eliminate conflicts of interest between their audit and consulting operations.

Last week, Deloitte confirmed a Sky News report that it was selling its restructuring arm to Teneo, a global advisory and consulting firm.

All of the big four have submitted plans to the Financial Reporting Council (FRC) demonstrating how they intend to ‘operationally separate’ their audit and consulting arms during the next four years.

That push has come in the wake of accounting scandals at companies such as BHS and Carillion, which collapsed with the loss of tens of thousands of jobs.

KPMG was Carillion’s auditor prior to its demise, and is likely to face a hefty regulatory fine in the coming months as the Financial Reporting Council concludes its investigation.

More stringent restrictions imposed by regulators mean restructuring teams in audit firms are now far more limited in the roles they can assume on corporate restructurings if the company has been audited by them in recent years.

KPMG has also grappled with a leadership crisis in recent weeks, with the UK chairman Bill Michael submitting his resignation after making a number of ill-judged comments on a call with colleagues.

The firm recently disclosed that its partners had taken steep pay cuts for last year, although they still earned an average of more than £500,000.

It has also sold its pensions advisory business to a buyout backed by Exponent Private Equity.

A KPMG spokesman declined to comment on Wednesday, while HIG Europe could not be reached for comment.

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