A June INSIDE Public Accounting Pulse Survey, which drew anonymous responses from 84 MPs in firms of $15 million and above, shows a majority are worried or unsure about the impact of private equity.
Few issues in recent years have generated as much interest – and concern – as private equity’s flood of investment into the profession, starting with EisnerAmper’s deal with TowerBrook Capital Partners in 2021, followed by majority-control deals with massive firms including Grant Thornton, Baker Tilly, Citrin Cooperman and Cherry Bekaert.
Overall, 19% thought PE would be good for the profession, 35% said the impact would be negative and 40% are unsure. The survey showed 85% have frequently been approached by one or more PE firms, and 66% said they have no interest in pursuing PE and want to remain independent.
Of those interested or actively pursuing relationships with PE firms, 30% said the biggest benefit is infusion of capital to make investments. Further:
- 3% cited back-office and C-suite support;
- 7% chose ability of professionals to enjoy economic upside;
- 23% said “all of the above,” and
- 34% chose “other,” citing the following potential benefits – partner retirement payouts, ability to compete for acquisitions and top talent, investment in technology and offshoring, and expansion of ownership in the firm.
Firm leaders without an interest in PE were asked their opinions on the best way to compete. Their responses:
- 0% said raising compensation;
- 3% said using outsourcing and technology to reduce the workload on entry-level staff;
- 21% said promoting culture;
- 67% said “all of the above,” and
- 7% cited “other.” One “other” respondent commented, “I do not believe anyone truly knows at this point. Promoting culture and taking care of your employees will always be a key to success.”
Comments on culture came up consistently.
“We have already heard about several people and partners at PE-backed firms that are disenfranchised,” wrote one commenter.
“A firm with a people-first culture can continue to thrive,” said another.
A third commenter said, “I am not sure how PE will positively impact culture. We are happy with our current compensation and have a pretty good pipeline of talent. I see a much greater risk of losing the things we like about our firm if we did a deal.”
Here is a selection of additional comments.
Positives
Several commenters cited positive aspects of PE investment in CPA firms:
- “I’m still unsure on whether this will be positive or negative for the industry, but I do think that the introduction of PE into the CPA space has challenged independent CPA firms to elevate their performance – to truly act as business owners.”
- “PE forces accounting firms to be run like a business. Most owners of firms seem to not want to give up control and be told what to do, which often is not in line with their skill set.”
- “PE investments are bringing to light the value of CPA firms. I do have concerns about the prospects of the follow-on transaction(s) three, five, seven years in the future, and in the meantime what PE ownership would do to firm culture.”
- “The CPA industry is long overdue for disruption.”
Negatives
Additionally, several commenters expressed negative thoughts about PE involvement with CPA firms:
- “I have not enjoyed the vulture-esque approach of many of the PE firms – total turnoff – and I’m afraid it is indicative of what they will do to the industry.”
- “PE investment has been a financial windfall, and it will likely be on a PE firm’s exit, but at the expense of future firm culture and legacy. All about the money. Just waiting for the cuts in headcount that PE will implement.”
- “PE in the profession will ultimately be a net negative, as PE focuses on short-term financial goals rather than long-term success. It will be a financial boon to retiring partners, but I expect that 15 years from now PE will regret their decision.”
Unsure
And then, there was uncertainty:
- “I think the view of the PE landscape is still in flux. Once the first deal(s) matures there will be further assessment. Ex.: Does the size of the Eisner deal require going public? Will some of the smaller deals flip to another PE or sell to Top 30?”
- “It’s complicated as they are providing investment and cash for audit|tax firms, particularly, as retirements come to fruition. However, they may be creating a situation where assets may be overvalued.”
- “It’s a bit like the Wild West right now. I think PE can add value to our profession and it also has the potential to harm it. I suspect there will be some of both.”
One respondent seemed to sum up many of the comments:
“I would expect PE will have both positive and negative impacts on the profession. It is too early to tell which way it will lean. It is certainly going to increase the pace of change in an already rapidly changing profession.”
