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Asset management behemoth
Blackstone joins a wave of private equity arrangements that have poured at least $2 billion into public accounting in just three years. The onslaught of third-party capital has stunned a sector that is more accustomed to slow but steady growth.
Those early investments are already reshaping the middle tier of the accounting market as deals grow rapidly in size, driven in part by firms flush with outside capital looking to grab market share.
Earlier this month private equity-backed Baker Tilly Advisory Group LP, the 10th largest US firm, announced it would merge with smaller rival Moss Adams LLP in a $7 billion arrangement that will propel it to the sixth-largest spot.
The dealmaking offers a glimpse of greater disruption to come as firms consolidate through a common private equity tactic of rolling up businesses to form larger, leaner operations. Mightier mid-tier firms could be in a better position to compete with the Big Four firms that currently dominate the accounting industry.
“There’s going to be a lot more deal activity here both in the original investment as well as turning over those original investments to a new holder,” said Chris Clapp, who leads the private equity practice at CrossCountry Consulting, an accounting and transaction advisory firm. “And over the next 10 years there will just be a significant consolidation that will occur.”
This consolidation will reduce competition, which could drive up prices and threaten the quality of services, skeptics argue. They also say outside owners and their focus on profits could hurt audit independence and quality. Long-term, that could undermine a business that contributes to the reliable fee growth so attractive to private equity and that protects investors and creditors throughout the US economy.
Evidence tying price hikes or quality declines to private equity investments is limited, however, said Elisabeth de Fontenay, a professor of corporate law and finance at Duke University School of Law. Some studies have shown a deterioration in patient care after private equity targeted the health care industry, for instance, while others reported slightly improved care, she noted.
At least two dozen accounting firms compete to own the middle-market serving smaller public companies and fast-growing private businesses. But that cluster of firms represents just a fraction of the 40,000 public accounting firms in the US—the vast majority serving small, local businesses with just a few partners and staff.
The fragmented accounting market is part of the draw for private equity, as fund sponsors see an industry ripe for consolidation. By combining peers and rivals, heftier CPA firms could benefit from shared technology and compliance systems, boosting profitability and ensuring outside investors can sell their stake at a gain.
The lure of those future paydays is already driving up valuations, making deals more expensive, advisers to accounting and private equity firms say.
Still firm leaders consider deals with outside investors an attractive solution as they combat a perfect storm of challenges. That’s forcing them to reconsider the partnership structure, a mainstay of the accounting industry.
Billions are needed to invest in artificial intelligence and other technology while fewer accountants are entering the profession. Meanwhile, retiring partners are looking to maximize the value of their shares.
In response, two of the largest US auditors to adopted new operating structures that free them up to offer more competitive compensation to staff and to fund both technology and expansion plans. BDO USA P.C., with $2.9 billion in revenue, created a partially employee-owned firm with debt financing from Apollo Capital Solutions, while its peer Grant Thornton Advisors LLC with $2.4 billion in revenue cut a PE deal with New Mountain Capital LLC.
“This is a reckoning for the partnership model that we have known for the last couple of decades. It’s breaking down,” said Marc Staut, shareholder and chief innovation and technology officer at Boomer Consulting Inc.
Private equity sponsors seek short-term gains and typically hold their stake in a given business for three to seven years before selling to another buyer, often saddling their targets with debt.
As private equity firms look to cash out their investments in the coming years, they will be seeking deals with bigger sponsors to acquire their stake. They could also tie together CPA firms through mergers.
Even firms that haven’t accepted third-party capital will be drawn into the fray as they too look to grow through acquisitions and mergers of their own.
Cherry Bekaert Advisory LLC is among the firms that are already growing thanks to outside investments. The top 25 firm more than doubled in size and inked at least 11 acquisitions to better serve its small and mid-market clients since cutting a private equity deal with Parthenon Capital in 2022—one of the earlier transactions in the accounting industry.
Other firms have quickly followed in Cherry Bekaert’s footsteps. About a quarter of the 30 largest US accounting firms made similar deals in 2024.
Blackstone entered the CPA firm market with a group of outside investors that acquired a majority stake in Citrin, a top-20 firm, after 2021 investments by New Mountain Capital in Citrin’s management and staff along with its ability to manage a string of acquisitions had driven the firm’s value to $2 billion.
As consolidated firms grow in scale and reach, other asset managers such as KKR & Co. Inc. and Carlyle Group Inc. could follow Blackstone’s lead, cementing the accounting sector as a PE target.
“When you start to put together player No. 7 and player No. 10,” said Clapp, with CrossCountry Consulting, “these could start to get really big.”
The largest of the consolidated firms could end up as a listed company after a public offering, joining CBIZ Inc., the lone accounting firm that is traded on US stock exchanges. A $2.3 billion deal to acquire Marcum, a smaller competitor, vaulted CBIZ into the top 10 firms in the country last year.
The inflow of investments will pressure firms that haven’t accepted third-party capital to similarly expand capabilities and invest, said Steven Strammello, the CEO of Crowe LLP, a firm with $1.3 billion in fees.
“You have to transform because if you don’t, you’re going to be irrelevant,” Strammello said.
Technology costs and making accounting careers attractive to current and future employees weighed heavily into Cherry Bekaert’s decision to take a private equity investment, said Michelle Thompson, the firm’s CEO.
“We knew that we needed to modernize who we were as a firm, and to modernize requires investment,” Thompson said.
Parthenon’s capital infusion freed the firm’s leaders to make long-term investments such as developing an automated compliance system to track its auditors’ independence and a platform to ease the daily workload of staff, she said.
The Big Four firms are unlikely to take part in the buying spree, said Jim Peterson, a lawyer who has represented international accounting firms and professional groups. Those firms—
Still, the four firms at the top of the market aren’t immune to the upheaval among smaller peers. And they are taking steps to streamline oversight of their own businesses to keep their competitive edge on the global stage.
Critics of third-party capital fear that new business models and their sharper focus on profits could undercut service quality and the sector’s appeal with workers.
“It’s a delicate business to be in and it’s not going to respond well to indelicate” outmoded strategies, said Jennifer Wilson, partner and co-founder of Convergence Coaching, a consulting practice that works with accounting firms on strategy and succession planning. Wilson is troubled by the flood of outside investments, calling them “disruptive.”
Personnel cuts made to prop up profits risk piling more work on remaining employees, leading to burnout. Overworked auditors, for example, might cut corners and miss significant financial risks or signs of fraud.
Employees who had hoped to one day own part of the business might leave for a competitor. Removing the partner-career track could compound the profession’s challenges recruiting and retaining qualified professionals.
Those approaches counter guidance Wilson and others have doled out to firms aiming to build viable businesses for the long term and develop the next generation of partners.
But firms must find a way to add capacity without piling more work on the backs of accountants, said Paul Peterson, CEO and managing partner at Wiss & Company LLP, a top 100 accounting firm.
“PE is pressuring all of us to rethink our businesses, which I think is very healthy,” Peterson said. “We have a lot of work to do to enhance the quality of life of an accountant.”
Others worry about the long-term repercussions for audit quality that might not emerge for years after the deals with outside investors have dried up.
Audits provide a critical safety net for the public markets, ensuring revenue and cash flows that drive stock prices are reliable. But firms face regulator and investor scrutiny as they struggle to meet basic standards more than two decades after an industry crackdown following the collapse of Enron Corp. and WorldCom Inc.
“We’re changing models now in the profession that have proven to be very effective for audit quality. What long-term impact will that have in 10, 15, 20 years?” Crowe’s CEO Strammello said.
Firms that focus on maximizing profits could pressure audit leaders to accept clients regardless of the risks they bring or the capacity of the firm to serve them, all in search of more fees. Private equity-backed firms also face steeper compliance burdens to track a longer roster of businesses they can no longer serve under conflict of interest rules meant to shield auditors’ objectivity.
But strengthening compliance systems can also be good for a firm’s enterprise value even if it eats into profits temporarily.
“We’re trying to create equity value, which means you have the best tech infrastructure, you have the best compliance infrastructure, you have the best track record,” said Walter Weil, managing director of TowerBrook, an international private equity firm that in 2021 invested in what today is Eisner Advisory Group LLC. “Those things matter.”
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