The rise and fall of EY’s Project Everest

EY, one of the Big Four accounting firms, embarked on an ambitious plan codenamed Project Everest, with the intention of splitting its audit and consulting divisions.

The proposed split was set to be a ground breaking move that could have reshaped the entire accounting industry. However, this audacious endeavour ultimately collapsed, leaving EY with significant financial repercussions.

In an attempt to execute the plan, EY borrowed over $700 million, resulting in a substantial debt burden for the firm.

The plan

The announcement of EY’s plan to split itself into two separate businesses sent shockwaves through the accounting and consulting industry. The potential implications of this move were immense, with the potential to trigger similar actions from the other three major firms in the sector.

The stakes were high, and the success of Project Everest could have set a precedent for the entire industry.

Project Everest aimed to divide EY’s audit and consulting businesses, with one of the companies going public. This strategic move would have rewarded partners with significant paydays and brought about increased business opportunities for everyone involved.

The plan required extensive negotiations and the involvement of thousands of employees, representing a monumental effort from the firm.

However, just as EY seemed to be making progress towards the summit of its own mountain, the entire project came crashing down. Internal discord and opposition from senior partners in the US led to the abandonment of Project Everest in April of last year.

The collapse of the plan left EY facing not only disappointment but also a substantial financial burden.

The debt burden

As a result of its failed spin-off plan, EY found itself shouldering a debt of over $700 million. This debt was incurred in its global operating business and was primarily associated with the expenses related to Project Everest.

The figures, revealed in accounts filed with Companies House, shed light on the substantial costs incurred by the firm due to the abandoned project.

EY’s borrowing skyrocketed from $269 million the previous year to $983 million in June of last year. The increase in debt was a direct consequence of the firm expanding its existing floating rate credit facility and introducing a second facility.

The decision to take on additional debt was aimed at spreading the costs of Project Everest over multiple financial years.

The impact on operations

The financial consequences of Project Everest were not limited to the debt burden. EY’s global professional fees, which encompassed the costs associated with the project, surged from $857 million to $1.5 billion in the same period.

These figures highlight the significant investment the firm made in terms of both financial resources and manpower towards the failed endeavour.

EY operates as a global network of member companies, with a unique structure that sets it apart from other multinationals.

The firm’s national member firms contributed approximately $6.4 billion in fees to the global operating company in 2023, representing a notable increase from the previous year’s $5.3 billion.

Managing the debt and future outlook

EY acknowledged the debt it incurred as a result of Project Everest but emphasized that it is a common practice for a global organization of its size to maintain a modest financing facility on its balance sheet.

The firm stated that the debt facility is managed in accordance with its agreed financial position and has been utilized to support various initiatives, including investments in technology, managing cash flow, and growing specific practices.

Despite the setback caused by Project Everest, EY remains committed to managing its financial position effectively. The firm has assured its partners that the costs incurred during the project will be almost entirely paid off by July 1, 2024.

EY’s external auditor signs off on the accounts for its global operating company, providing further assurance of the firm’s financial transparency and accountability.

Looking ahead, EY has been undergoing significant cost-cutting measures and streamlining its operations since the abandonment of Project Everest. The firm has made the difficult decision to reduce its workforce, eliminating thousands of jobs worldwide.

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