October 28, 2021

Private Equity Is Now Dipping Its Toes In Public Accounting Firms

In early August, EisnerAmper announced a “strategic investment” in the firm courtesy of investment management firm TowerBrook Capital Partners, the first of its kind for a firm of that size. The door is now wide open for private equity to get a piece of the accounting pie.

Per the press release:

TowerBrook’s significant capital infusion will help drive EisnerAmper’s long-term growth initiatives, which include accelerating the evolution of service offerings, investing considerably in talent and technology, and strategically expanding via organic growth and targeted mergers and acquisitions—all directed at exponentially enhancing client service.

We can safely extrapolate from this bit that Eisner understands it will take more than squeezing clients for every dime billable hours to compete in the ongoing (and escalating) talent war.

This news pretty much flew right by our radar because we’re usually too busy suspiciously eyeing creepy firm robots for the first sign of hostile human takeover and other such critical matters but a recent Reuters article about the investment caught my attention and I figured this item might be of note.

Before everyone gets excited, it’s not like accounting firms will become the next Bitcoin. But it does mean that we could see some truly interesting shake-ups in the years ahead. On the investor side, this is a win as they can avoid being on the receiving end of long screeds about why private equity is destroying [x] market (currently it’s housing) because no one over at Slate is going to make it their personal mission to excessively hand-wring over investment firms ruining accounting.

Back to that Reuters piece. In it, we learn that the Eisner deal is something that’s been in the works for longer than many of you have been in the profession, it just never panned out until now.

The deal is transformational and there are likely more to come, said Allan D. Koltin, CEO of Koltin Consulting Group and an advisor to accounting firms involved in many of the profession’s largest mergers and acquisitions. “Private equity has been trying to get into the accounting profession for 15 years,” Koltin said. “This journey started back in 2006 and, up until a few weeks ago, in the world of the Top 20 CPA firms it’s been unsuccessful.”

Market changes have created an unprecedented demand for capital among accounting firms — for technology, talent, and strategic acquisitions — that opened the door for this type of deal, Koltin explained.

“Firms are merging fast and furiously to expand geographically and to expand their products and services,” Koltin added. “As a result, there are more larger firms in our profession today than ever before. When you get to a point in your growth somewhere between $100 million and $200 million — it’s like [getting] a target on your back. You have to keep growing. This business is unforgiving. If you don’t continue to grow you can’t continue to recruit and retain great talent. They go somewhere else.”

In case reading between the lines isn’t your specialty, that last paragraph is a strong signal that firms are freaking out about this talent problem. We’ve known that, of course, but it’s yet another piece of evidence to file away in our binder of things that keep firm leaders up at night. And for all of you, this means that you are running this show, not the people who sign your paychecks.

Given that, we’ll be keeping an eye on this going forward.

Further reading:
Guest Article: Be Wary of Private Equity – Could Be the Devil With a Blue Dress On [INSIDE Public Accounting]
As M&A activity reshapes the tax & accounting profession, private equity takes a hand [Reuters]
EisnerAmper Announces Investment By TowerBrook Capital Partners [PR Newswire]

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2 Comments

  1. Having worked for a company that was acquired by private equity, usually the model is to cut costs to the bone. Which means smaller raises and bonuses as well as all sorts of other things being taken away- cheaper coffee, less generous expense reimbursement, no Christmas party, etc.

    Amused to see this pitched as a way to attract better talent. Now that private equity is involved with EisnerAmper, their problems are likely to only get worse.

    1. Agreed.

      I worked in a PE pool and I saw first hand that these PE firms come in, cut cost, drop the assets into another firm, leverage debt, or sell the firm.

      These PE firms targeted the accounting firms because these firms have strong balance sheets, strong cash flow, jobs that can be automated / outsourced and a client base that needs to be serviced for decades.

      To the extent that there will be any hiring long term- Data Analyst /Technology talent will hot. Within two years of the PE firms taking over, accounting roles will be outsourced to accountants located outside of the United States.

      Watch this space.

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