Private equity's growing presence in the accounting landscape has given rise to a substantial inflow of capital opportunities, empowering firms seeking to expand into new markets or deepen their presence in existing ones. Despite all the up-front benefits of non-bank lending, accountants can't help but wonder about the true cost of going down this road.
Firms like
This year alone, EisnerAmper has used the funding to support four acquisitions:
Philip Whitman, CPA and CEO of advisory firm Whitman Transition Advisors LLC, said PE activity has only grown since that first investment, with 2024 being the year that investors have become more eager to invest in or partner with CPA firms.
"To date, our team has met with over 150 private-equity groups that have a desire to find foundational firms in the accounting/CPA firm arena. … Not a week goes by that I am not hearing a pitch or new thesis by at least three or four private-equity groups that are considering entering the accounting-firm space," Whitman said.
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While the money itself is a welcome addition for firms of various sizes, the conditions it could bring are less so —
Firms that provide attest services must be majority-owned by licensed CPAs, but still allow for a minority stake to be owned by non-CPA entities. New York Governor Kathy Hochul signed a
As is often the case, PE transactions will result in a firm being divided into two entities, one owned by CPAs to oversee attest services, and the other wholly or part-owned by non-CPA private-equity partners that provide non-attest services such as tax, technology or consulting services.
Experts stress the importance of a clear distinction between which parts of a firm are owned by CPAs and which are not, both from a legal standpoint and a client relationship perspective.
"My understanding is that the PE firms have a bit of a workaround, with those employees and transferring income, but I feel that could be a very fine line or walking on thin ice," said Stephen Mankowski, owner of the Pennsylvania-based accounting firm Mankowski Associates CPA. "Firms need to be independent both in fact and appearance. … The PE firms cannot have a relationship with any clients of the CPA firm."
Even with those divisions, PE groups "putting tens or hundreds of millions of dollars into an organization will want a say" in how the broader organization is run, said Mark Masson, managing partner and head of professional services at the Chicago-based Lotis Blue Consulting.
"It may look collaborative at first, but what does it look like six to 18 months in when you hit a bumpy patch?" Masson said.
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Firms that can navigate those dilemmas gain access to a pool of investors hungry to dive into the world of accounting, promising vast funding for M&A strategies, technology investments, and.
"PE has raised the 'performance bar' for CPA firms by moving them from a 'country club' culture to a 'country' culture. … Specifically, they have instilled a culture of greater accountability (less autonomy) and hence a higher-performing firm over the 'hold' period," said Allan Koltin, CPA and CEO of Koltin Consulting Group.
Read on to learn more about the growing presence of PE in the accounting profession, and how experts are keeping a close eye on the promises and pitfalls of new investment activity.
The unequal impact of private equity in accounting
The influence of private equity and the much-needed capital it brings has been steadily growing across the accounting profession over the last few years. But seasoned professionals say that while it works for some, it's not a cure-all.
"Private equity is not a silver bullet," Allan Koltin of the Koltin Consulting Group told attendees at Accounting Today's inaugural PE Summit, held in late November. "If you don't do PE, that doesn't mean you won't be successful. But you do need to figure out what you're going to do" to solve the issues of access to capital and resources that PE deals help with.
The values of PE are seemingly only an option for the higher-earning firms, Koltin explained, as the scrutiny of PE firms where earnings reviews are concerned is a high bar to clear.
"It seems like a lot of deals have happened, but believe me, the same number or more have died," Koltin explained.
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The private equity changeup in accounting career pathing
Private-equity investments, outside the obvious capital benefits, are repathing traditional career tracks across the accounting profession, according to a
The
Career pathing has been a particular point of contention for many firms seeking to enlist fresh talent amid a
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Private equity is the beginning of a new era. Is it a good one?
Accounting has undergone numerous changes over the last four years, as private-equity firms have continued to grow in scale and number throughout the profession. Experts like Matthew Marinaro, a principal at PE firm Red Iron Group, say if this trend were likened to a baseball game, "We're in the second or third inning."
These partnerships have become prevalent in various forms, according to Allan Koltin, speaking at the AICPA Executive Roundtable in New York in September.
Models include instances of PE firms acquiring a piece of a Top 25 Firm to then provide capital for buying up smaller Top 500 firms, as well as more broad purchases of Top 30 to Top 100 accounting firms by middle-weight PE players.
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Revenue quality — not just quantity — is key
Those at the heart of the growing trend of M&A in accounting say recurring revenue is an important factor in any private-equity deal, but it's revenue quality over quantity that will win out in the end.
One such person is Jason Slivka, a corporate development partner with Top 25 Firm Citrin Cooperman. His firm has executed at least seven notable acquisitions this year alone, including
While speaking at the Scaling New Heights conference in Orlando, Florida, this year, Slivka explained that his "holistic" approach to evaluating possible acquisitions starts with culture, then works its way outwards towards financial metrics.
"We will want to understand how they have managed their business throughout its course, so we can understand its culture and people," he said.
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The private equity 'revolution' comes with risks
Private equity is having its moment in wealth management and accounting, following a significant drop off in deal activity by volume and value in 2023 when compared to the prior year. Experts remain wary, however, that
In Top 100 Firm Cherry Bekaert's most recent annual
"As investments have begun to take shape and private equity demonstrates its ability to drive transformational growth and improve financial performance in people-heavy businesses, the hesitation has become less concerning," the report said. "CPA, consulting and wealth management firms appear to be in the midst of a private equity-backed revolution."
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