TPG Capital's Bid to Revive 'Project Everest' Through EY Consulting Division Stake Purchase

Private equity giant TPG Capital is reportedly considering a revival of its 'Project Everest' initiative with a proposal to acquire a stake in EY's consulting division.

The move involves outlining a debt-and-equity deal that would separate EY's consulting wing from its audit business. TPG's aim is to eventually take the consulting business public. The proposal suggests a private transaction, which TPG claims would provide more leverage for the separation than a public approach.

This separation shares similarities with the earlier 'Project Everest,' though it's not identical. Under this deal, EY's audit operations would remain under the ownership of EY partners. TPG would invest equity in the consulting business and raise debt to fund the purchase. TPG Capital has expressed openness to EY retaining a larger share of tax services within its audit division—a significant departure from the firm's traditional structure.

If successful, this split would mark one of the most significant shake-ups in the industry since Arthur Andersen's 2002 collapse following the Enron scandal, which led to the transformation of the 'big five' into the 'big four' accounting firms.

While TPG Capital hasn't specified a price for the consulting business, it suggests that the new consulting entity could unlock substantial value post-separation, potentially amounting to tens of billions of dollars. A key advantage of this separation would be eliminating potential conflicts of interest that can arise when consultants work for audit clients.

TPG Capital, known for managing around $137 billion in assets, has reportedly requested a 90-day exclusivity period from EY Global to negotiate the deal.

The original 'Project Everest' concept aimed at spinning off the consulting division through an immediate initial public offering (IPO) with the expectation of raising approximately $100 billion for the new entity. However, the project was canceled in April 2023 due to internal conflicts.

The challenges faced by 'Project Everest' centered around the allocation of tax services. The proposal to hand the majority of tax services to the new consulting entity faced resistance from the U.S. division of EY. The original project envisioned allocating 15% of the consulting business for sale, 15% for staff equity incentives, and retaining 70% for partners.

The fate of TPG's proposal remains uncertain, especially considering the recent failure of 'Project Everest.' One source close to the discussions suggested that EY might not pursue TPG's expression of interest so soon after the earlier project's collapse.

EY's consulting business has proven highly lucrative, contributing significantly to the firm's rising revenues. EY has projected global revenue of $50 billion for 2023, marking a 10% increase from the previous year and a more than 34% surge since 2020.

Despite 'Project Everest' never coming to fruition, EY invested over $600 million in its preparation. Following the cancellation of the project, CEO and Global Chairman Carmine Di Sibio announced his plan to retire early in June 2024, leaving EY without a chosen successor for its global CEO role.

By fLEXI tEAM