Last year the Institute of Chartered Accountants in England and Wales (ICAEW) put together a report on the state of mid-tier firms across the pond based on a survey of managing partners that we covered in two parts:
- Here’s How Mid-Tier Accounting Firms Are Feeling About Private Equity and M&A
- Here’s How Mid-Tier Accounting Firms Are Feeling About the Talent Crisis and Remote Work
The excerpt below is from the first one that covered private equity and mergers/acquisitions:
[M]any firms in the ICAEW survey are understandably concerned that PE will do a Red Lobster on their firm. It’s rumored — rather, people with eyes and brains are postulating — that Grant Thornton’s recent layoff of 350 people is due to PE-related housekeeping. No doubt more PE-aligned firms will be trimming fat as their investors seek ways to streamline the business. Firms that are already a hot mess will be gutted and sold off in parts.
And there’s another concern: the personal touch. It’s the family-owned grocer versus Wal-Mart.
Conversely, maintaining independence may support firms in upholding their unique identity, values and client approach, which some firms believe could be jeopardised under external ownership. More than one-fifth of respondents (21%) described the culture of their firm as ‘family-like’, and a further 17% as ‘traditional’, which may not be seen as a natural fit for PE investment. One respondent suggested that there were already “disgruntled clients” unhappy with accountancy firms taking on PE investment, and that remaining independent was an opportunity for their firm.
So this is interesting. When news of EY splitting its audit and consulting practices hit the news, we saw their competitors championing their “multidisciplinary private partnership model” as superior to the chopped up service lines EY was debating. See: Deloitte Global CEO Joe Ucuzoglu Just Mic Dropped EY’s Messy Split Drama and PwC Plans to Poach Unhappy Senior Managers From EY. In both of the linked examples, EY’s direct competition was quick to plant a seed in clients’ minds that their way of doing business was superior to what EY would have going after the split. We should expect to see similar behavior with non-PE firms versus PE-funded ones.
Brace yourselves for a bunch of corny “wE’rE a FaMiLy” marketing from firms that are morally opposed to private equity investment.
OK, I said that semi-ironically at the time but it’s unironic now. One of my recurring shower thoughts in the months since writing that has been firms coming up with some kind of Made in the USA-esque label differentiating them from their PE-backed competitors. While everyone else is selling out — excluding Big 4 firms, almost the entire top 20 has taken some kind of PE investment or is entertaining it — there will be some firms that proudly maintain control of their firms and advertise this as a big selling point to clients.
Wouldn’t you know, Grassi founder and CEO Louis Grassi (IPA Top 100 #56 with $132.6 million in revenue) just did exactly that in an article for Long Island Business News. In “Choosing your accounting firm: why ownership matters” he writes:
The accounting industry is currently at a crucial crossroads. As consolidation reshapes the landscape, firms face a significant decision between seeking private equity (PE) investment and exploring alternative ownership structures. While PE-backed acquisitions frequently make headlines, this trend raises critical questions about service quality, client relationships and the industry’s long-term health.
The increasing influence of PE in accounting reflects broader market dynamics, but its impact on service delivery warrants closer scrutiny. PE firms typically seek returns within three to five years when they invest. This timeline can create pressure to maximize short-term profits, often at the expense of client service quality and staff development. Partners may find themselves balancing investor demands with their professional commitments, which could compromise the personalized attention clients expect and deserve.
He goes on to suggest employee stock ownership plans (ESOPs) as a preferable alternative. After giving his pitch he says:
Critics may argue that ESOPs limit access to capital for growth compared to PE backing. However, this perspective often overlooks the hidden costs of external investment, including reduced autonomy and pressure to cut corners for quarterly results. Employee ownership empowers firms to pursue strategic growth while upholding their professional values and service standards. Focusing on short-term metrics can decrease partner engagement and diminish service quality. In contrast, employee ownership enables firms to maintain high service standards while pursuing strategic growth that benefits the firm and its clients.
“The path forward requires balancing growth ambitions and the enduring principles that have long-defined successful accounting practices,” he said snarkily at the end.
