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EY took on $700mn in debt for doomed ‘Project Everest’ spin-off plan

Feruary 11, 2024

New figures detail cost to Big Four firm of unsuccessful effort to separate consulting arm

EY piled more than $700mn of extra debt on to its global operating business to deal with the costs of the failed plan to spin off its consulting arm, according to newly filed accounts.

The figures, made public at the UK’s Companies House over the weekend, detail the financial impact of Project Everest, which collapsed in April after infighting at the Big Four accounting firm.

EY spent some $600mn preparing the spin-off, which its global leaders said would turbocharge growth for both sides of the firm by freeing consultants from conflict of interest rules that prevent them selling services to audit clients.

The firm’s borrowing soared to $983mn at June 30, 2023, up from $269mn a year earlier, as it expanded an existing floating rate credit facility and took out a second. The extra debt is designed to smooth the costs of Project Everest across more than one financial year.

Overall, EY’s national member firms sent $6.4bn in fees up to the global operating company in the 2023 fiscal year, almost 13 per cent of global revenue of $49.4bn. In 2022, the figure was $5.3bn, representing under 12 per cent of revenue.

Unlike a typical multinational company, EY is a network of locally owned partnerships linked through a global entity that sets strategy and manages shared services such as IT. The global operating company, based in the UK, is run on a break-even basis, funded by fees charged to the national member firms.

“It is common for a $50bn global organisation such as EY to maintain a modest financing facility on our balance sheet,” it said.

“The financing facility has been utilised to support previous investments in new technology, managing cash flow and growing specific practices. As already communicated to our partners the costs incurred during Project Everest will be almost entirely paid down by July 1, 2024.”  

One credit facility of $700mn had been reduced to $535mn by November, according to a note to the accounts about developments since the fiscal year end.

Spending on the failed split is reflected in operating expenses in the EY global accounts, which rose to $6.3bn in the 2023 fiscal year from $5.3bn. “Professional fees” — which include Project Everest work done by EY’s national member firms as well as money paid to external advisers — jumped to $1.5bn from $857mn.

National members firms — most notably the US, which accounts for about 40 per cent of EY’s revenue — have often chafed at the operating costs of the global headquarters. After the collapse of Project Everest, Julie Boland, US managing partner, said she would push for cost cuts at the global level.

EY is in the midst of a strategy review following the appointment of Janet Truncale to be its next global chief executive. Carmine Di Sibio, who masterminded Project Everest, is stepping down from the role at the end of June.

[The Financial Times]

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