We received a tip this morning:
Crowe just got a firmwide email from the chairmen of the board and CEO that Crowe is “in explorative stages” of outside investment. WSJ is expected to post something in the coming days
“In the coming days” ended up being 13 minutes after the firm-wide communication was sent and this is the article: The Accounting Firm Weighing Private-Equity Ownership After Years of Ignoring Calls
Kinda funny how WSJ made it sound like Crowe has been beating off private equity with a stick for a long time when this private equity thing didn’t even start until 2021, a mere four years ago. Technically correct, we suppose, but still a funny way to frame it.
Here’s what Crowe CEO Steven Strammello told WSJ:
Crowe held to its view that it didn’t need to sell to private equity as many of its peers struck deals. That position has now changed in that the firm is now open to it. Outside investment could help speed up Crowe’s efforts to adopt artificial intelligence across its business lines and market the expansion of its services, Strammello said.
“Our capital structure hasn’t materially changed in 80-plus years,” Strammello said. “There’s just been more of an open-mindedness to really step back and reflect and re-evaluate that.”
Crowe is in the early stages of evaluating whether it would sell a minority or majority stake to one or multiple private-equity investors, or do nothing at all, Strammello said. The firm isn’t interested in a merger of equals or being acquired by a larger firm due to concerns it would have to sacrifice its brand or strategy, he said.
Call us skeptical but it seems strange to go straight to Wall Street Journal and inform all your people about something that may or may not actually happen. Sort of like announcing a pregnancy when you’re only three weeks along. Perhaps they’ve done it to fire up some kind of bidding war and court big private equity suitors, who even knows anymore.
Chicago-based Crowe is currently #12 on the INSIDE Public Accounting Top 100 with approximately $1.28 billion in revenue.
A major problem that these firms have is partner retirements and having the ability to cash out these departing partners. This will help mitigate this problem. But another reason is to compensate the top partners in particular with a large portion of the private equity’s cash infusion (recall EY planning to go public?). Of course, none of the infused cash will see it distributed to employees through higher benefits or wages. Yet, be sure that the private equity will see to it that there is considerable headcount reduction of non-revenue earning employees – back office, HR, recruiting, etc.
The younger partners who are admitted after the deal will suffer if the metrics are not set correctly partner by partner. I was admitted after a PE deal, and my metrics are not even close to what I do. I will leave a top 25 firms in the next few weeks for a top 10 firm and better equity because the current firm doesn’t get it.
Paying out retiring partners isn’t new but it is generally done over 7-10 years. PE firms will come in and value a firm much higher than the firm’s internal valuation. Retired partners paid out day 1. Soon to be retired partners get their buyout day one and another large payout after they are retired. Younger partners get a nice but much smaller payout day 1. Partners take a significant pay cut too with younger partners taking a smaller pay cut. The PE firm may also allow non equity partners, senior managers and managers to get equity. I have heard this is very attractive to younger folks bc instead of waiting to make equity partner in X number of years, vesting over 20-30 years and paid out during retirement years, you get regular payouts. All this new equity comes with strings attached – vesting, performance, required reinvestment, illiquidity of your equity. Of course, if you are acquired by a PE back firm, you will need to terminate most of your non revenue staff.
The extraction of capital from the working class will continue until there is nothing left to take.
Get a load of Trotsky over here…
I don’t buy that they are spending this money on AI, or any other technology. None of these non Big 4 firms are big enough to develop their own AI and it doesn’t cost that much to subscribe to them. And if AI is so great, shouldn’t the costs be regained almost immediately with increased productivity? And marketing? Seems very unlikely. Sounds like a way for only ONE generation of partners to get a higher valuation on their equity to the detriment of everyone else involved in the profession as employees or clients.
Of course. It’s not like the business is issuing new shares to the outside investor with the new cash going to the balance sheet. All of the new cash is going to selling shareholders. There’s no new money to invest in AI – that’s just a talking point.
And so the selling of the soul and integrity of public accounting continues