Liza Robbins
Kreston Global Chief Executive
Liza joined Kreston in 2018, after almost a decade with Morison Global. Liza manages all network operational activities, including Board and Global Expert Group liaison. She is focused on the development of the Network as a commercially-viable entity for its members and their clients.
Prior to Morison KSi, Liza held roles at Cision, Thomson Reuters, Conde Nast and Dennis, as well as holding a number of Non-executive roles.
Navigating the trend of private equity investment in accountancy
August 1, 2023
In a significant development highlighting the growing trend of private equity in accountancy, Moore Kingston Smith – a top-10 accountancy firm in the UK – was recently bought by a Dutch private equity group. For the first time in the UK, it will retain its partnership structure. According to press reports, this may lead to an influx of private equity investment locally, in our industry and in other professional services.
I wasn’t surprised to read this news. In recent years, there has been an influx of private equity money into our industry. In 2022, three top-100 US CPA firms were bought by private equity, and there are reports that “six of the largest accounting firms” in the US are currently in talks.
The appeal of accountancy firms for private equity
The trend is by no means restricted to large firms or to the US. So what are the lessons to be learned?
From the point of view of private equity firms, accountancy firms are an attractive proposition.
Our profession offers high client stickiness, with an expanding client base as we venture into advisory services, cybersecurity, internal audit and other related areas. As businesses become more complex, the demand for our services continues to grow. The accountancy sector also offers numerous opportunities for mergers and acquisitions, enabling private equity firms to establish substantial platforms quickly.
Many accountancy firms find the prospect equally appealing.
The traditional ownership model, where new partners buy out equity, is facing challenges. Younger accountants are often reluctant to take on significant debt, particularly when they are uncertain about committing to a single firm for the next three decades. At the same time, senior partners are seeking retirement options.
These circumstances open the door to alternative funding avenues, such as private equity investment.
It can be an excellent choice. There is currently a huge demand for investment in firms – whether that’s in talent acquisition, technology, the development of new services or the implementation of robust ESG policies. Private equity entities have the financial resources to make all this possible.
And their involvement can have a positive ripple effect on our entire industry, potentially raising standards, expediting innovation and driving substantial investment.
But there are also significant challenges when you take this path.
Challenges of private equity investment
Culturally, it can be very difficult to give up control of a firm which you used to regard as yours, sometimes leading to clashes between old and new management. (This can be true for any acquisition.)
There are also the exit strategies of private equity firms to consider.
More broadly, this trend can create pressure on smaller firms that don’t have the same access to funds, either to sell out themselves – or face falling behind their competitors.
The potential consequences of widespread consolidation within the industry remain uncertain, and there are implications for networks like ours, as well. Specific equity funds may prefer the firms they buy to belong to one preferred network, which may result in a lot of movement.
Is private equity right for your firm?
Whether or not the private equity route is right for your firm is a very personal decision – there is no objective right or wrong. By staying abreast with the big players and deals, you will be well-informed about developments. It is also important to consider your own exit plan.
Think, as well, about the future you wish for your team, because this concerns them too. Selling to private equity can provide many opportunities for them, including a more corporate structure, the chance to belong to a larger group, the opportunity to work for a well-funded firm and more. But be aware that others won’t like the cultural change that accompanies this transition.
Ultimately, if you do go down this route, do your due diligence on potential buyers – and look beyond the financial aspects. Do their values align with your firm’s? Will they respect your knowledge and expertise? Is there cultural alignment?
The success of any purchase will ultimately depend on the answers to these questions.
