Jeff Ferro, chief executive of Baker Tilly, the nation’s 10th largest accounting firm, had reached an uncomfortable conclusion: To stay competitive, his firm had to invest more in technology, mergers and new hires than its 570 partners, many nearing retirement, could or would cough up. The nine-decade old Chicago-based partnership needed an outside investor. “Over the last decade, we did a really nice job building up our balance sheet, putting more equity into the organization,’’ he says. “But the landscape got more complicated, more competitive, and it got more expensive to run the firm and to achieve our strategy.”

So in late 2022, Baker Tilly hired investment banker William Blair & Co, which arranged meetings with 25 potential private equity investors–sessions that Ferro likens to first dates. Finally, this past February, after more than a year of screening potential partners and negotiating with the two it had chosen, Baker Tilly announced a deal. The transaction closed on June 1 with Hellman & Friedman and Valeas Capital Partners reportedly paying a combined $1 billion for just over 50% of the accounting firm.

The February announcement made Baker Tilly, with its 6,700-person workforce and $1.7 billion in revenues (for fiscal 2024 ended May 31), the largest U.S. accounting firm to ever take private equity cash—a distinction if held for all of six weeks. On March 15, Grant Thornton, the 7th largest accounting firm, said it, too, would sell part of itself to private equity–in this case to billionaire Steven Klinsky’s New Mountain Capital, with CDPQ and OA Private Capital making smaller investments.

As the chart below shows, five of the largest 25 U.S. accounting firms, ranked by revenue, have taken private equity money.

The accounting firms in green have taken private equity, while those in blue are exploring it. Marcum, in pink, is being acquired by publicly traded CBIZ.

The accountant-PE mating game began in August of 2021, when TowerBrook Capital Partners announced it was investing in #17 EisnerAmper’s non-audit business (now a separate legal entity known as Eisner Advisory Group, though both businesses still operate under the brand name of EisnerAmper). At the time, most in the accounting industry regarded it as an oddity. But as EisnerAmper grew, other firms took notice. The following year, New Mountain Capital acquired a stake in Citrin Cooperman (#19) and Parthenon Capital bought into Cherry Bekaert (#24).

This year, the PE action has reached a new, almost frenzied pace. Another five of the top 25 accounting firms could well announce deals before the end of the year, says Allan D. Koltin, a CPA and CEO of the Koltin Consulting Group, Inc., which has advised on billions in private equity deals and mergers in financial services.

Says........

© Forbes