Private Equity Investing in Public Accounting

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In late 2020, news broke of private-equity firms purchasing stake in top accounting firms and news of new partnerships continue to hit newsstands. The deals, and their terms, gained attention within the profession. The question now is, what does this mean for the future of the accounting profession?

According to Koltin Consulting Group CEO, Allan D. Koltin, in a recent Journal of Accountancy article, a non-CPA firm cannot own an attest firm, so there’s what’s called the alternative practice structure. Because the buyer- in this case the private-equity firm- cannot purchase the audit practice, they take an ownership interest in the tax and consulting business. Essentially, they’re buying a majority of the firm, typically something more than 50% but probably not more than 75%. CPA firms will need to set up so-called “alternative practice structures” when they receive investments from private equity firms and publicly traded companies, and the AICPA Code of Professional Conduct requires them to follow certain rules of conduct and make specific business arrangements.

Private equity has attempted to infiltrate the profession since 2006, though unsuccessfully. However, today’s accounting firms are in great demand for additional capital. Market changes have put new stresses onto firms, causing them to seek funding for staffing, expansion, acquisitions, use of the latest technology and more. According to Reuters, Private equity investors are attracted to accounting firms because they believe they are low risk and recession-proof, deliver positive cash flow, and are poised for growth as the industry transitions to a more advisory-oriented service model.

As we see CPA firms continue to grow, succeed, and hire talented staff, there is sure to be further news of acquisitions and mergers between the profession and private equity.