For a deeper dive into private equity CPA M&A check out our new market update report on the topic! poegroupadvisors.com/cpa-private-equity/
Why are private equity firms flocking to acquire accounting firms? The accounting profession has attracted increasing interest from private equity investors, and there are several reasons why.
It’s nice to be noticed by people who are looking at this industry with the steely eyes of objective, professional outsiders. We couldn’t agree more, and we’re bullish on the potential that firm ownership offers.
Private equity interest also reflects many of the characteristics that accounting firm owners have valued for years: recurring client relationships, resilient demand, opportunities for operational improvement, and the potential to grow through acquisition.
Four reasons why private equity thinks accounting firms are an excellent investment:
1. Steady Streams of Revenue: Accounting firms, especially established CPA practices, often boast stable and predictable cash flows. Clients rely on their services year after year, making them somewhat predictable for investors seeking consistent revenue streams with a “sticky” client base.
Recurring tax, accounting, and advisory relationships can create a level of revenue visibility that is particularly attractive to investors evaluating long-term growth opportunities.
2. Resilience in Economic Uncertainty: The accounting industry has proven to be resilient even in times of economic downturn. Whether it’s tax season or financial consulting, businesses and individuals require professional accounting services, making these firms relatively resilient across different economic conditions. Private equity firms recognize the value of investments that scan continue serving essential client needs during economic uncertainty.
3. Scalability and Efficiency: This is where it is exciting for us. We know there is an opportunity to improve this profession in many ways. Private equity firms specialize in optimizing business operations. By infusing capital and management expertise, they can help accounting firms scale their services efficiently, quickly and profitably. They are betting that they can transform firms. By providing capital, organizational structure, and objective leadership, they see the potential for an attractive return on investment. Many of these firms intend to “roll-up” multiple CPA firms to take advantage of the economies of scale that bigger firms enjoy. Technological advancements and streamlined processes may also create opportunities to improve efficiency, expand service capacity, and support a firm’s continued growth.
4. Client Relationships and Cross-Selling Opportunities: Trust is the currency of our profession. Accounting firms often enjoy long-term, trusted relationships with their clients. Private equity firms recognize the potential of leveraging these relationships to cross-sell complementary services. For instance, offering financial planning to existing tax clients creates additional revenue streams. This ability to cross-sell is often well understood by many accounting firms but the ability to execute can sometimes be difficult. Private equity can be a catalyst for much more intentional business development.
For investors, these established client relationships can provide a strong foundation for expanding advisory, financial planning, consulting, and other complementary services.
Is Selling Your CPA Firm to Private Equity the Right Fit?
Private equity can be an attractive option for certain accounting firm owners, but the right buyer ultimately depends on the seller’s goals, timeline, culture, and desired level of involvement after closing.
When evaluating a private equity buyer, owners should understand the investor’s experience in the accounting profession, operating model, long-term strategy, and plans for the firm’s team and clients.
Perhaps the best candidate for a PE firm is one where the firm owners are looking for a partial partner exit and/or wish to continue working as an employee or partner after the sale. An owner with several more years to work who wants to keep growing their firm, but just needs additional capital and structure to maximize their opportunities, could be an excellent candidate. In this instance, an owner could sell part of their practice now, with a formula for a later exit at a higher valuation. The hope is that the “second bite at the apple” is more than the first.
For some owners, this structure offers an opportunity to take liquidity today while remaining involved in the firm’s future growth. For others, a strategic buyer, internal succession, or a more traditional sale may better align with their exit goals.
What Should CPA Firm Owners Consider Before Accepting a Private Equity Offer?
The biggest issue we face in the accounting industry is finding good people. This is a multi-tiered issue but we believe that a well-run firm has an easier time attracting and retaining good people. Private equity in many cases will come in and optimize the overall strategy, evaluate pricing, operations, technology, staffing, and growth strategy with the goal of improving the firm’s performance over time. They will make significant changes over time, so owners need to have clear expectations of what changes are being contemplated post-close.
As with any buyer, fit matters. Owners should understand how a prospective PE partner plans to address staffing, capacity, leadership, client service, and cultural continuity after the transaction. A strong offer is about more than valuation alone. Deal terms, future responsibilities, earn-out provisions, governance, and the long-term plan for the firm should all be considered.
If you have already received a private equity offer, an independent view of your firm’s value and the proposed deal structure can provide important context before you make a decision. Poe Group Advisors works with accounting firm owners to evaluate buyer options, understand transaction terms, and compare opportunities based on their individual goals.
Private Equity Is Expanding the Options Available to CPA Firm Owners
We have a large variety of private equity firms fielding opportunities with us. We see it becoming more prominent within accounting firm M&A, giving owners another potential path to liquidity, growth capital, succession, or transition.
Private equity is not inherently better or worse than another type of buyer. The important question is whether the buyer, transaction structure, and long-term plan align with what you want for yourself, your employees, and your clients.
If you are considering selling your CPA firm, evaluating a private equity offer, or simply want to understand what your options may look like, contact Poe Group Advisors for a confidential conversation. Our team works with accounting firm owners and a wide range of qualified buyers to help identify the structure and partner that best align with each owner’s objectives.
Thanks!
Brannon Poe, CPA
Frequently Asked Questions About Private Equity and CPA Firms
Why is private equity buying accounting firms?
Private equity investors are attracted to accounting firms for several reasons, including recurring client relationships, resilient demand, opportunities to improve operational efficiency, and the ability to grow through additional acquisitions and service expansion.
What happens when private equity buys a CPA firm?
The structure varies by transaction. Some owners exit completely, while others retain equity or remain involved in leadership after closing. Buyers may also invest in technology, staffing, pricing strategy, additional services, or future acquisitions.
Should I sell my CPA firm to private equity or another CPA firm?
There is no single right answer. The best option depends on valuation, deal terms, cultural fit, your desired transition timeline, and whether you want to remain involved after the sale. Comparing multiple qualified buyers can help you evaluate the full range of available options.
How can I evaluate a private equity offer for my accounting firm?
Look beyond the headline purchase price. Consider cash at closing, rollover equity, earn-outs, employment requirements, governance, transition expectations, and the buyer’s plans for employees and clients. An independent CPA firm valuation can also provide a useful benchmark when reviewing an offer.
