The big story making the rounds on this fine Monday morning is this one published yesterday on Financial Times: EY took on $700mn in debt for doomed ‘Project Everest’ spin-off plan:
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.
Shortly after the ambitious plan to split audit and consulting arms into their own businesses to free the firm from those annoying independence rules fell apart, it was reported by Wall Street Journal that EY planned to use “a combination of bank borrowing and accounting maneuvers to ensure that the dead-deal costs have ‘minimal’ impact on partner earnings.” And that wasn’t the only accounting magic EY leadership was doing to soothe partners worried about their payouts according to that WSJ piece:
EY put about $600 million into Everest before it fell apart — half of that was internal costs — and leadership said the firm saved about $400 million along the way that would have otherwise been spent on projects that were deferred while they worked out the deal. EY also intends to reduce the impact of the costs by writing them down over several years, rather than take them as a single hit to earnings, said WSJ.
What we didn’t know back then that we do know now is that, per FT, the firm’s debt increased 265.43% last year:
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.
That’s $714,000,000 for the mathletes counting along at home.
“It is common for a $50bn global organisation such as EY to maintain a modest financing facility on our balance sheet,” said the firm in a statement. “The financing facility has been utilized to support previous investments in new technology, managing cash flow and growing specific practices. The debt facility is being managed in line with our agreed financial position. The accounts for EYGS are signed off by our external auditor.”
*49.4 billion global organization.
“As already communicated to our partners the costs incurred during Project Everest will be almost entirely paid down by July 1, 2024. There is no change to this position.”
You can see all the firm’s recent Companies House filings, including this one dated February 9, here.
Everest was a $#!Tshow, but this is not news. The firm’s total debt is still not significant and the 700M is paid down to 550M by now. I don’t think EY should have spent 700M chasing daisies, but that they debt financed it is hardly news (it’s actually smart even at today’s rates). Honestly, the FT clearly has someone on payroll.