The Toffees attempted a £7.1 million bid for the centre-back, which was rejected by the La Liga side.
Hermoso is a talented defender, and one who Everton's rivals Liverpool should be tracking as they too bid to solve their leaky backline.
Hermoso came through Real Madrid's academy and left last summer in order to play first team football, and he has done just that at Espnayol, making 18 starts this season and also scoring once.
He is only 22 and has a reported £35.5 million release clause in his Espanyol contract.
He ticks the boxes for Liverpool in their search for defenders, he is young, talented, and is improving all the time with potential to reach the top.
Liverpool splashed out on Virgil van Dijk in January but questions remain over who will be his long term partner.
Dejan Lovren has moments of quality but is inconsistent, while Mark Lawrenson has tipped Joe Gomez to establish himself as Van Dijk's future partner.
Hermoso would be a low cost gamble, off-setting the expensive addition of Van Dijk while continuing to show further investment in defence.
Everton are likely to continue with their interest in the Spaniard, but Liverpool could do well to take a look themselves.