Private equity (PE) accounting is no longer a buzzword in business. This is what we’ve gleaned from major news stories over the past three years. Accounting firms’ private equity partnerships are reshaping a highly regulated landscape long dominated by traditional partnership models.
The Financial Times has even projected that one-third of America’s top 30 CPA firms could undergo acquisition. This shift is likely to extend into international markets as well.
Indeed, the winds of change are blowing strong through the accounting world. PE firms steer the course as they acquire accounting firms.
Understanding Private Equity in Accounting
Definition and Purpose
Private equity represents investments in established, privately held businesses. Often, these companies—in this case, accounting firms—already have proven track records and are seeking further growth opportunities through PE investment.
PE firms provide both capital and strategic expertise to drive value creation. Their goal is to improve the firm over a typical investment horizon of four to seven years before selling their controlling interest for profit through mergers, acquisitions, or initial public offerings (IPO).
For firm owners, private equity represents a significant shift from traditional accounting firm operations to a more investment-driven approach.
An IPO is when a private company first sells shares of its stocks to the public on a stock exchange—essentially, “going public.” This process allows companies to raise significant capital from the broader market.
Key Dates
The relationship between accounting and investment firms has evolved in the past decade. Below are the key developments in the timeline of private equity accounting firms.
- 2007
Private equity investors initially tried buying into accounting firms, only to be thwarted by the Global Financial Crisis of 2008-09.
- August 2021
TowerBrook Capital Partners opened the floodgates of deals through its investment in EisnerAmper LLP, one of the top 20 US CPA firms.
Consequently, the firm adopted an alternative practice structure, splitting itself into two entities: EisnerAmper LLP for attest services and Eisner Advisory Group LLC for non-attest functions.
In his interview with the Journal of Accountancy, Allan D. Koltin, CEO of Koltin Consulting Group, explained that PE firms cannot, by regulation, purchase an audit practice. Instead, they claim a stake in the tax and consulting side of the business, leading firms to adopt alternative practice structures.
- 2022
Two other big players, Citrine Cooperman and Cherry Bekaert LLP, announced PE buyouts in April and June, respectively. These firms planned to use these investments’ capital to expand their service offerings.
- Late 2022-2023
Bain & Co. noted a significant slowdown in deals and exits due to rising interest rates and macroeconomic shocks. These included inflation, natural resource shortages, and supply chain disruptions.
Despite this tumultuous background, Bain remained optimistic about the industry’s long-term prospects, citing $3.9 trillion in available dry powder (unspent capital). This figure meant there was enough funding to fuel future deals.
- 2024
And deals were truly had. Grant Thornton and Baker Tilly made headlines for securing private equity backing, with the former being the biggest PE investment in the US accounting industry to date.
This flurry of high-profile PE activity in recent years signals a shift in how accounting firms operate and structure themselves.
But where did such interest come from in the first place? Let’s backtrack a bit to understand the factors driving this change.
Why Private Equity Firms are Interested in Accounting
The accounting industry has several attributes that led to the rise of private equity accounting firms. Below, we name three:
1. Recession-resistant
Regardless of market conditions, businesses enlist professional services firms, including accounting firms, for audit and advisory services year after year. This predictability means the industry generates recurring revenue streams, making it a safe investment for PE firms.
2. Highly fragmented
The accounting industry’s structure—thousands of small, independent firms—creates opportunities for consolidation. PE firms can create value by:
- Merging smaller firms into larger, more efficient organizations
- Expanding service offerings
- Building a stronger market presence
- Achieving economies of scale
3. Ripe for innovation
The fourth industrial revolution is driving change across industries at an unprecedented pace. Private equity investments provide the financial firepower and strategic support accounting firms need to keep up. This might mean technological upgrades or the upper hand in the war for talent acquisition.
These factors make accounting an ideal market for growth and value creation. It’s also a huge plus, as Koltin highlighted, that “accountants are trustworthy.”
Investing in a reliable and ethical accounting practice means PE firms are putting their money into a business that clients trust, which translates to sustainable growth potential with managed risk.
Benefits of Private Equity in Accounting
The transformation of traditional practices into private equity accounting firms has several advantages:
Access to Capital
Capital infusion from PE investors enables accounting firms to make strategic growth investments.
First, there’s tech. With additional funding, firms can adopt advanced software and automation tools to streamline processes and improve accuracy.
Enhanced tech capabilities can, in turn, open doors to new service offerings. Take cybersecurity advisory as an example. Firms with sophisticated tools can leverage their expertise to implement controls against risks to financial data security. This expansion better positions firms to meet clients’ evolving needs, strengthening their market standing and resilience.
Beyond technology, private equity investments may also include infrastructure improvements. Outdated IT systems, which have long been frustrating, can finally be upgraded. And firms can modernize office spaces to create more collaborative work environments.
More than the aesthetics, these improvements can be a tool in attracting both clients and elite talent.
Operational Expertise
Private equity firms mean seasoned management professionals. Owing to their experience in various industries, they can introduce best practices to optimize accounting workflows and enhance service delivery.
What may be a traditionally slow-moving accounting firm can become a model of efficiency, leading to increased profitability and better client satisfaction.
Strategic Vision
The hand of private equity in accounting firms is proactive. With their broader market perspective, PE firms can identify opportunities that might not be apparent to those entrenched in the day-to-day operations of accounting.
This broader perspective enables accounting firms to expand their portfolios to include business advisory services. In turn, firm owners can enter new geographic markets, diversify service offerings, or even pursue mergers and acquisitions to scale the business.
Professionalization of Management
Shifting from a partnership model to a more corporate structure can improve governance. With formal board structures and best practices, accounting firms can engage in more strategic decision-making with enhanced accountability.
This transition can also introduce a performance-driven culture, where employees are rewarded based on their contributions and skills, not seniority or tenure. By identifying high performers and offering them development opportunities, firm leaders ensure they have a pipeline of capable leaders ready to step into critical roles.
Related to clear succession planning is an exit strategy. Founders and partners planning to retire can do so with confidence that the practice will continue to run while potentially having lucrative buyout options from private equity firms.
Challenges of Private Equity in Accounting
Along with the benefits we’ve just described, private equity accounting firms must carefully manage certain challenges:
Cultural Integration
Private equity firms often have a culture distinct from traditional accounting firms. While the latter prioritizes long-term client relationships, PE firms aim for aggressive growth and ROI. The pressure to deliver results within an abbreviated timeframe risks compromising the personalized service that clients value.
Additionally, private equity ownership impacts decision-making processes. The corporate structure typically replaces the consensus-based model with a centralized, top-down approach. As a result, experienced professionals accustomed to having a voice in the firm’s direction may feel alienated.
Client Concerns & Trust Issues
Under private equity ownership, clients may worry about a shift from quality service to profit maximization. This perceived conflict of interest or lack of independence could damage relationships and, by extension, the firm’s reputation.
Regulatory and Compliance Considerations
Auditor independence—a cornerstone of the profession—could be questioned when external investors have a stake in a firm’s profitability. Regulators will likely scrutinize these arrangements closely, potentially leading to new compliance burdens for firms.
Training & Development
Private equity accounting firms focus on billable hours and short-term performance metrics, which might reduce investment in training and mentoring programs. This reduction could undermine the accounting profession’s future expertise, creating a skills gap between experienced and newer practitioners.
Managing PE-Driven Growth Through Offshoring
The challenges detailed above can impact business success, but they also open new opportunities. Offshoring is one example. By delegating routine compliance tasks offshore, firms can balance aggressive growth targets with service quality.
This structure enables local staff to focus on high-touch client interactions while offshore teams handle routine accounting processes, ensuring 24/7 operational excellence. Meanwhile, senior staff can prioritize mentoring local talent and developing their advisory capabilities.
Are Private Equity Accounting Firms the Future of the Profession?
The verdict on this question is still out. As the industry navigates this new landscape, we may witness traditional compliance work taking a backseat to more lucrative advisory services and tech-driven solutions, reshaping accounting firms’ core offerings.
Changes in firm culture and compensation structures could also alter the career trajectories of accounting professionals. From a regulatory standpoint, the challenges posed by PE ownership may prompt the development of new standards or regulations to ensure the profession’s integrity.
While the full extent of these changes remains to be seen, the future of accounting will likely be shaped by how well accounting and investment firm owners can balance investors’ demands with clients’, employees’, and the broader stakeholder community’s needs.
It’s a complex equation, but one that, if solved correctly, could lead to a more dynamic and efficient accounting industry.
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