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April 30, 2008

Promoting a unified approach

John Harley has recently been appointed as head of private equity for Ernst & Young’s Northern Europe, Middle East, India and Africa group. The Big Four veteran speaks to IAB about the changing face of the firm’s private equity offering.

John Harley joined Ernst & Young (E&Y) in 2000 following a 26-year career with PricewaterhouseCoopers (PwC). At his previous firm, highlights included becoming an audit partner with PwC UK at the age of 32, turning around PwC Netherlands’ struggling corporate finance and recovery practice, running the PwC Europe M&A business and heading its telecoms, media and entertainment, and technology (TMT) business.

Harley says he was headhunted by E&Y in 2000 because of his TMT knowledge, which he describes as his “sweet spot”. In the following years, he has led the E&Y TMT corporate finance group and the E&Y Europe TMT service, and served as the network’s global vice chair for accounts, industry and business development.

“My responsibility was to make the E&Y world consistent,” Harley says of his vice chair role. He explains that the seven regional E&Y groupings had a different basis for investing in large accounts, no industry sector programmes of any significance and inconsistent business development. “My role was to bring us a consistent priority accounts programme so that we had a language that we could speak that the whole world of E&Y would understand what we were talking about.”

Greater investment The network then agreed to invest in 13 principal sectors, which Harley says cover about 90 percent of the world’s top 1,000 companies. “We now have about 3,000 priority accounts, which make a very significant part of our total global revenues… yet we have more than 100,000 accounts in total. The whole thing was to get the priority accounts clear, back them up massively with a big industry sector programme, give them the knowledge they need and make sure they can access it, and then check whether the client satisfaction levels are what we want to achieve. We now have a major programme – the biggest of any of the Big Four – and one of the areas that came out where we needed to put more investment was the private equity field.”

Harley was appointed to lead the private equity line for Ernst & Young’s Northern Europe, Middle East, India and Africa (NEMIA) group and spearhead the implementation of a more comprehensive offering. He says private equity services is like a triangle with funds at the top, transactions in the middle and portfolio companies at the base: “My job is to bring all three of those together so that we give a consistent global service to these accounts and we give them real sector knowledge and proactive advice.”

Traditionally, the private equity service line would focus on work surrounding transactions, such as due diligence work and tax advice. “Now we’re focused on expanding that offering to give more cohesive and consistent advice across the cycle of the investment,” Harley says. “Traditionally, because our transaction business is one of our biggest businesses globally as a firm, we tended to go from one transaction to the next. What we want to do is to move from transactions into serving that company so that we get that right. My job is to work with partners to get the handovers right, the services right and the reporting back to the private equity funds right. We’re redefining the way that we’re servicing these clients so that represents a big opportunity. It’s also stressing the importance of the size of the private equities.”

Harley points to the move towards the listing of private equity funds and the UK Walker Review of transparency and disclosure in the private equity industry as challenges that are facing the industry. “At the same time it’s also very successful and is attracting more and more investment from the pension fund,” he adds. “It’s also building out to the emerging markets so we’re dealing with much more work in the Middle East, Russia, India, China and Turkey, places like that.”

Harley says the amount of investment by pension funds is increasing in the industry. “We think that private equity is on a little bit of a pause at the moment at the top end because of some of the banking issues, but it’s a pause that’s well earned because there has been so much activity from 2002 through 2007,” Harley says. “But we think a lot will be back in late 2008, early 2009. We think the [initial public offering – IPO] market is much reduced so there’s going to be less IPOs certainly in the first six months of this year and maybe the second six months, so the market is changing from that perception.

He continues: “Private equity has been very successful, it is attracting huge amounts of funds now… some of the banks who have either at some stage cut back their investment, say as an example Morgan Stanley, are now reinvesting in private equity. So the industry is pretty much thriving, pretty vibrant, has been returning well to investors and therefore is attracting even more money from investors.”

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