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KPMG in £200m pensions sale talks with Exponent

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The KPMG offices stand in 15 Canada Square, Canary Wharf on October 2, 2018 in London, England

The large audit firm KPMG has entered into exclusive negotiations to sell its pension advisory unit to a purchasing company as it reshapes its business amid growing pressure on the profession.

Sky News has found that KPMG is in advanced talks on selling the division to Exponent Private Equity, which has supported companies such as Quorn, the meatless food brand, and Loch Lomond Distillery, the whiskey producer.

Sources said Wednesday that Exponent was in talks to buy the deal, which advises clients on managing pension assets worth more than £ 50 billion for more than £ 200 million.

The division is one of KPMG's largest and most profitable consulting operations and has about 20 UK partners working for it.

In total it employs about 450 people.

Negotiations on the sale of the pension business have been taking place since June and several other financial and commercial competitors have sent offers, according to people close to the lawsuit.

Image:
The exponent's investments included the meatless Quorn brand

News of exclusive discussions with Exponent comes a few days after KPMG UK President Bill Michael informed the UK's KPMG partners that their average salary has fallen by almost 10% to £ 629,000 last year.

The decline was driven, in part, by a series of regulatory fines imposed by audit failures and the rising cost of reform as pressure increases in the big four to completely separate their auditing and consulting practices.

Excluding distributable earnings from previous years, the average figure was around £ 550,000, a memo from Michael said, compared to £ 601,000 in 2018.

Last year, KPMG was fined approximately £ 18 million by the Financial Reporting Council (FRC), which is due to be disbanded due to failed audits at companies such as Cooperative Bank and BNY Mellon.

Michael added that £ 45 million in investments in his auditing practice, including recruiting an additional 800 auditors "to improve quality and strengthen our business," was funded from the year's profits.

"Audit expectations continue to evolve; our industry faces the prospect of fundamental technology disruption and the structure of our companies and markets is being completely redesigned by our regulators," Michael told partners in his memo last week.

The head of KPMG put his company at the forefront of the move, announcing late last year that all work, except essential non-auditing, would cease for the FTSE-350 companies whose accounts they audit.

Michael said the decision to terminate non-audit work for audit clients "has cost us several multiyear consulting projects and has had an impact on our tax and pension business," highlighting one reason for deciding to sell the last business.

The unloading of the pension sector would highlight the complexities that the four major auditors – Deloitte, EY, KPMG and PwC – are seeking to address amid pressure from regulators to reform their profession.

The collapse of major companies, including BHS and Carillion, has increased the spotlight on the auditor profession, prompting former business secretary Greg Clark to devise plans to eliminate FRC and replace it with a new body: Auditing , Reports and Governance Authority.

Clark's successor Andrea Leadsom has vowed to push ahead with the reforms, although the government was criticized last week by Sir John Kingman, the architect of the regulatory overhaul, for not including the necessary legislation in the queen's speech.

Rachel Reeves, chairman of the Commons business selection committee, criticized the audit profession on Tuesday when former Thomas Cook auditors gave evidence of a close examination of the collapsing travel group's books.

In a statement issued in response to a Sky News question, a KPMG spokesman said: "After a significant interest in our market-leading pension practice, we can confirm that we have entered into exclusive talks with Exponent with the goal of making advance a sale.

"We will not comment further while the negotiations continue."

KPMG declined to comment on the price under discussion, while Exponent could not be reached for comment.

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