Accounting
Capital vs. control: PE’s impact on CPA firms
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Private equity’s growing presence in the accounting landscape has given rise to a substantial inflow of capital opportunities, empowering firms seeking to expand into new markets or deepen their presence in existing ones. Despite all the up-front benefits of non-bank lending, accountants can’t help but wonder about the true cost of going down this road.
Firms like
This year alone, EisnerAmper has used the funding to support four acquisitions:
Philip Whitman, CPA and CEO of advisory firm Whitman Transition Advisors LLC, said PE activity has only grown since that first investment, with 2024 being the year that investors have become more eager to invest in or partner with CPA firms.
“To date, our team has met with over 150 private-equity groups that have a desire to find foundational firms in the accounting/CPA firm arena. … Not a week goes by that I am not hearing a pitch or new thesis by at least three or four private-equity groups that are considering entering the accounting-firm space,” Whitman said.
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While the money itself is a welcome addition for firms of various sizes, the conditions it could bring are less so —
Firms that provide attest services must be majority-owned by licensed CPAs, but still allow for a minority stake to be owned by non-CPA entities. New York Governor Kathy Hochul signed a
As is often the case, PE transactions will result in a firm being divided into two entities, one owned by CPAs to oversee attest services, and the other wholly or part-owned by non-CPA private-equity partners that provide non-attest services such as tax, technology or consulting services.
Experts stress the importance of a clear distinction between which parts of a firm are owned by CPAs and which are not, both from a legal standpoint and a client relationship perspective.
“My understanding is that the PE firms have a bit of a workaround, with those employees and transferring income, but I feel that could be a very fine line or walking on thin ice,” said Stephen Mankowski, owner of the Pennsylvania-based accounting firm Mankowski Associates CPA. “Firms need to be independent both in fact and appearance. … The PE firms cannot have a relationship with any clients of the CPA firm.”
Even with those divisions, PE groups “putting tens or hundreds of millions of dollars into an organization will want a say” in how the broader organization is run, said Mark Masson, managing partner and head of the professional services at the Chicago-based Lotis Blue Consulting.
“It may look collaborative at first, but what does it look like six to 18 months in when you hit a bumpy patch?” Masson said.
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Firms that can navigate those dilemmas gain access to a pool of investors hungry to dive into the world of accounting, promising vast funding for M&A strategies, technology investments, and.
“PE has raised the ‘performance bar’ for CPA firms by moving them from a ‘country club’ culture to a ‘country’ culture. … Specifically, they have instilled a culture of greater accountability (less autonomy) and hence a higher-performing firm over the ‘hold’ period,” said Allan Koltin, CPA and CEO of Koltin Consulting Group.
Read on to learn more about the growing presence of PE in the accounting profession, and how experts are keeping a close eye on the promises and pitfalls of new investment activity.
The unequal impact of private equity in accounting
The influence of private equity and the much-needed capital it brings has been steadily growing across the accounting profession over the last few years. But seasoned professionals say that while it works for some, it’s not a cure-all.
“Private equity is not a silver bullet,” Allan Koltin of the Koltin Consulting Group told attendees at Accounting Today’s inaugural PE Summit, held in late November. “If you don’t do PE, that doesn’t mean you won’t be successful. But you do need to figure out what you’re going to do” to solve the issues of access to capital and resources that PE deals help with.
The values of PE are seemingly only an option for the higher-earning firms, Koltin explained, as the scrutiny of PE firms where earnings reviews are concerned is a high bar to clear.
“It seems like a lot of deals have happened, but believe me, the same number or more have died,” Koltin explained.
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The private equity changeup in accounting career pathing
Private-equity investments, outside the obvious capital benefits, are repathing traditional career tracks across the accounting profession, according to a
The
Career pathing has been a particular point of contention for many firms seeking to enlist fresh talent amid a
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Private equity is the beginning of a new era. Is it a good one?
Accounting has undergone numerous changes over the last four years, as private-equity firms have continued to grow in scale and number throughout the profession. Experts like Matthew Marinaro, a principal at PE firm Red Iron Group, say if this trend were likened to a baseball game, “We’re in the second or third inning.”
These partnerships have become prevalent in various forms, according to Allan Koltin, speaking at the AICPA Executive Roundtable in New York in September.
Models include instances of PE firms acquiring a piece of a Top 25 Firm to then provide capital for buying up smaller Top 500 firms, as well as more broad purchases of Top 30 to Top 100 accounting firms by middle-weight PE players.
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Revenue quality — not just quantity — is key
Those at the heart of the growing trend of M&A in accounting say recurring revenue is an important factor in any private-equity deal, but it’s revenue quality over quantity that will win out in the end.
One such person is Jason Slivka, a corporate development partner with Top 25 Firm Citrin Cooperman. His firm has executed at least seven notable acquisitions this year alone, including
While speaking at the Scaling New Heights conference in Orlando, Florida, this year, Slivka explained that his “holistic” approach to evaluating possible acquisitions starts with culture, then works its way outwards towards financial metrics.
“We will want to understand how they have managed their business throughout its course, so we can understand its culture and people,” he said.
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The private equity ‘revolution’ comes with risks
Private equity is having its moment in wealth management and accounting, following a significant drop off in deal activity by volume and value in 2023 when compared to the prior year. Experts remain wary, however, that
In Top 100 Firm Cherry Bekaert’s most recent annual
“As investments have begun to take shape and private equity demonstrates its ability to drive transformational growth and improve financial performance in people-heavy businesses, the hesitation has become less concerning,” the report said. “CPA, consulting and wealth management firms appear to be in the midst of a private equity-backed revolution.”
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Treasury Secretary Scott Bessent and congressional leaders will begin meeting weekly as Republicans look to shape a tax cut package with a year-end deadline, according to people familiar with the matter.
The meetings, which will start this week, will include key Republican leaders, including House Speaker Mike Johnson, Senate Majority Leader John Thune, and Senator Mike Crapo and Representative Jason Smith, who chair the tax committees in each chamber. The people shared the details of the meetings on the condition of anonymity to discuss a matter which isn’t public.
The planned confabs are a sign that Republicans are getting serious about negotiating the contours of a tax deal, even as the House and Senate are pursuing separate legislative strategies. Politico first reported the planned discussions.
The impasse on the legislative process has spurred divisions among Republicans and has slowed down talks to advance their priorities. The disagreement could be a harbinger of a deeper rift as lawmakers pass large-scale policies through tight majorities in the House and Senate.
The House has started the process to approve a massive, singular $4.5 trillion bill that also includes energy and immigration measures and raises the debt ceiling. The Senate is pursuing plans to pass a border security bill in the coming months, leaving the tax negotiations until later in the year.
The House will vote as soon as Tuesday on a budget outline requiring $2 trillion in spending cuts in exchange for the tax cuts.
Republicans have until the end of the year to renew expiring portions of President Donald Trump’s first-term tax cut law, which reduced income rates on individuals and included a bevy of tax cuts for small businesses. Trump has also said he wants to expand those tax cuts to include a series of campaign trail promises, including ending levies on tipped wages, overtime pay and Social Security benefits.
The White House has also said it would like to pass several other tax measures that could prove to be controversial among Republicans, including an expansion to the state and local tax deduction, eliminating the carried interest tax break favored by private equity fund managers and terminating tax breaks for billionaire sports team owners.
Among the tax cuts set to expire at the end of the year are an expanded credit of up to $2,000 per child, a 20% write-off for small business owners and a higher standard deduction that simplifies the filing process for many taxpayers.
One of the biggest issuers in the municipal-bond market is warning it may need to scale back its borrowing plans if federal lawmakers eliminate the tax-exemption on municipal debt.
The Metropolitan Transportation Authority, which runs New York City’s transit system, anticipates selling $13 billion of debt to help support its 2025—2029 capital plan. But the MTA would need to lower that amount to about $10 billion if the agency were forced to sell taxable bonds rather than tax-exempt, according to Kevin Willens, the agency’s chief financial officer.
“There’s been discussion of eliminating tax exemption for public sector infrastructure projects, which would be a killer to our ability to raise capital,” Willens said Monday during the MTA’s finance committee meeting.
The MTA had
“Unless we got additional revenue, we’d have to borrow less because debt service cost for every dollar borrowed would be higher,” Willens said in an interview after Monday’s committee meeting.
Tax-exempt debt helps finance public works projects throughout the U.S. Federal lawmakers are working on potential tax reform legislation that may limit the use of such borrowings or even eliminate it completely. Ending the tax benefit on municipal debt would cost states and local governments about $824 billion over a decade, according to a
The U.S. trade group representing restaurants urged President Donald Trump to spare food and drinks from tariffs, estimating the levies could cost the industry more than $12 billion and lead to higher prices for consumers.
In a letter to the president, the National Restaurant Association said companies would have no choice but to raise prices if tariffs came into effect, citing the industry’s already-tight profit margins of 3% to 5% on average. Trump pledged during his campaign to
“We urge you to exempt food and beverage products to minimize the impact on restaurant owners and consumers,” the association said in the letter viewed by Bloomberg News. “This will help keep menu prices stable.”
The group estimated the potential impact assuming 25% tariffs on food and beverage products from Mexico and Canada.
In its letter, which was sent earlier this month, the association praised some of Trump’s plans, including a proposal to
“For many food products, the appropriate climate and growing conditions do not exist in the US year-round to produce the quantities needed for our businesses,” the group said in the letter, signed by Chief Executive Officer Michelle Korsmo.
Food costs account for about 33 cents of every dollar of sales, so tariffs could result in a profit decline of about 30% for the average small restaurant operator, the association said. The group’s members say that rising food costs are among the main challenges to growth.
Restaurants are battling to attract diners following years of price increases across the economy that have caused many consumers to retrench and prioritize spending on other areas. Large chains have rolled out value menus with varying degrees of success. Some, including McDonald’s Corp., have
“Right now, restaurants really do not have much wiggle room,” said Joe Pawlak from food service consulting firm Technomic.
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