Top 25 Firm Armanino LLP has taken on a strategic minority investment from private equity firm Further Global Capital Management.
The deal, which closed today, is the latest in the series of investments by private equity in large accounting firms that began in 2021 — but with a key difference, Armanino CEO Matt Armanino told Accounting Today.
"What's maybe the punchline here — what's really unique, I think — is that we wanted to focus on a minority investment that allowed us to retain not just operational control of the business, but ownership control of the business," he said. "Those are some of the guiding principles that we've been thinking about over the last number of years, and we felt like if we could accomplish those things strategically with the right partner, it would really be just a home run, and that's where we think we've landed."
As is common with CPA firms taking on private equity investment, Armanino LLP will restructure to an alternative practice structure, splitting into two independently owned and governed professional-services entities: Armanino LLP, a licensed CPA firm wholly owned by individual CPAs, will provide attest services to clients, and Armanino Advisory LLC, a consulting and advisory firm, will perform non-attest services.
Inside the deal
As have many large firms, Armanino LLP had been looking at private equity for some time.
"We've been analyzing the PE trend over the last few years and our discussions with Further Global actually began several years ago, and along the way we confirmed our initial inclination that Further Global would be a great partner for us," CEO Armanino said.
"We had the opportunity to meet with dozens of leading private equity firms," he explained. "Ultimately we concluded that Further Global would be the best partner for us based on their expertise in partnering with professional service businesses in particular, and our desire for a minority deal structure."
While citing Further Global's "deep domain expertise" in financial services and business services firms, Armanino noted that this would be the PE firm's first foray into the accounting profession: "This is their first accounting firm deal, and I think they're only focused on this one at this time."
An employee-owned PE firm,
Guggenheim Securities LLC served as the financial advisor and sole private placement agent to Armanino LLP, while Hunton Andrews Kurth LLP acted as its legal counsel. Further Global was advised by Pointe Advisory, with Kirkland & Ellis as legal counsel.
"Armanino ranks as high as any CPA firm in the country with the private equity community," commented Allan Koltin, CEO of Koltin Consulting Group, who has advised Armanino for over two decades. "Their deal with Further Global fit just like a glove. They will keep control and now have the capital structure to compete on the biggest of stages."
Internally, the Armanino partner group was unanimous in its support for the deal — and in its insistence on only selling a minority stake.
"We've had transparent discussions at the leadership level around not only adding an outside investor, but we knew very early on that a minority investment was the best path forward for us, and we were very excited that there was unanimous support from the entire partnership group around that decision," Armanino said. "This structure is also going to allow the long-term owners and partners of Armanino to maintain full control over our day-to-day operations, and the proud culture that we've built."
"No other firm in the Top 25 has a structure like this, and I think that's pretty significant," he added.
Capital plans
The goal of the deal is to give Armanino the capital it needs to take itself to a new level of growth while also addressing some of the most pressing challenges in accounting: investing in technology, pursuing inorganic growth through M&A, and attracting and retaining talent.
The firm has always been tech-forward and recently has been a major pioneer in artificial intelligence.
"The capital will enable us to fast-track our investments in advanced technology solutions, particularly AI," said Matt Armanino. "We've seen growing desire from our clients to deploy real applications for AI solutions. And while we've been at the forefront of automation and AI since the early days, with the development of our AI Lab a few years ago, innovative AI-driven solutions that address our clients' most urgent challenges remain a top priority for us."
Beyond technology investments, the firm plans to continue its aggressive M&A strategy which has brought on 19 acquisitions since 2019.
"Those transactions have allowed us to expand our capabilities and enter into new markets and drive greater value to our clients," said Armanino. "And we think we can accelerate that now with this capital structure that we have."
All that M&A has brought the firm a lot of fresh talent, but no firm these days has enough, and that's a third purpose for the new capital.
"We think there remains a lot of ripe talent across the country out there," he said. "I think the capital will support our efforts to attract, retain, develop and reward top talent by investing in people who drive our entrepreneurial spirit here at the firm."
The deal will allow the firm to reward top talent, for instance through equity plans that allow them to extend the firm's ownership culture beyond the partner group that it has traditionally been restricted to.
"In many cases, for our most senior employees today, there's not a natural mechanism to align their effort to the success of the firm to the growth of our enterprise value and how that ultimately rewards them," explained Armanino. "And we are very excited that we have new mechanisms, and plans in place, that are going to allow us to do that very well, and effectively push down the benefits of ownership and that ownership culture to our most senior employees."
"Finally," he added, "speaking to our innovative culture — and that's a big part of our brand — the capital will empower us to say 'Yes' more frequently to great ideas, to entrepreneurial ideas and initiatives that truly make a difference for our clients and set us apart as a leader in this industry."
