Traditional CPA firms are facing the need for new capital to attract talent, invest in technology, and participate in M&A activities. Baker Tilly, the nation’s 10th largest accounting firm, recently made the decision to seek outside investors after realizing that their partners could not provide enough capital to stay competitive. After a year of screening potential partners, Baker Tilly announced a deal with private equity firms Hellman & Friedman and Valeas Capital Partners, who paid over $1 billion for just over 50% of the accounting firm.
This move makes Baker Tilly the largest U.S. accounting firm to ever take private equity cash, followed closely by Grant Thornton, the 7th largest accounting firm, which also announced a deal with private equity firm New Mountain Capital. Five of the largest 25 U.S. accounting firms have now taken private equity money, signaling a shift in the industry towards external investments to address challenges such as talent acquisition and technology adoption.
The shortage of available CPAs has been a growing concern as Baby Boomers retire and younger generations turn away from accounting careers. Private equity investments can help address this challenge by providing funding for technology adoption, which can automate repetitive tasks and free up manpower for more valuable services. Baker Tilly, for example, has split its operations into two partnerships— one focusing on business advisory services and the other on licensed CPA services—to leverage PE funds for growth and innovation.
While some in the industry, like Allan D. Koltin of Koltin Consulting Group, see private equity as a positive force that will reshape the profession for the better, there are concerns about the long-term impact of external ownership on the independence and priorities of accounting firms. Critics worry that PE funding could compromise auditor independence and shift the focus away from core audit services towards more profitable areas like tax and advisory services.
Despite these concerns, private equity firms are increasingly seen as stable long-term investors who can drive growth and profitability in accounting firms. The competitive landscape, combined with the aging founders of many accounting firms, has made them attractive targets for PE investment. The challenge lies in balancing the financial benefits of PE funding with maintaining the integrity and independence of audit services, ensuring that the profession continues to uphold its core values and standards.
Ultimately, the influx of private equity funding is forcing traditional CPA firms to adapt to a changing industry landscape, where technology, talent acquisition, and growth strategies are paramount. While some firms, like BDO, have pursued alternative structures, such as employee stock ownership plans, others are embracing PE investments as a way to secure their future and attract younger talent. The industry is evolving, and the role of private equity in shaping the future of accounting firms remains a topic of debate among industry experts and practitioners.
