ACCOUNTING
ACCOUNTING
Private Equity is Changing the CPA Profession
By Larry Feld
The great consolidation of the accounting industry is well underway.
In a recent interview in the Wall Street Journal, leading accounting industry consultant and dealmaker Allan Koltin, chief executive at advisory firm Koltin Consulting Group, predicted by the end of 2025, more than half of the largest 30 U. S. accounting firms will have either sold an ownership stake or part of their business to private-equity investors, up from zero in 2020. In New Jersey, two large firms, EisnerAmper and Citrin Cooperman, are among the early adopters of the private equity( PE) model. More recently, PKF, Grant Thornton, and Baker Tilly have made the move. Why sell a professional practice to investors?“ There are a lot of baby boomer firms out there that didn’ t create a succession model and need to merge up or be acquired,” says Joseph A. Damiano, CPA, CEO of Parsippany-based accounting firm SAX LLP.“ To them, the private equity model seems to be a good solution, as they might get a lot more of their cash up front and maybe at a slightly higher valuation than accounting firms typically traded in the past.”
“ Based on the firm, private equity can be viewed as an opportunity,” adds Aiysha( AJ) Johnson,
MA, IOM, Chief Executive Officer and Executive Director of the New Jersey Society of CPAs.“ It is an opportunity for access to capital, deep expertise and talent, and an infusion of cash to leverage such things as technology, acquisitions, and to stabilize revenue opportunities,” she notes.
“ Also, it may be seen as an opportunity to institute new models for firm leadership; funding buyouts and bringing in new partners. I think that what we’ re seeing is an expansion of opportunities in accounting as a profession in general.”
“ We have an abundance of talent right now who are exiting quality firms.”
“ I have both pros and cons as it applies to PE,” adds Robert Traphagen, Managing Partner of Bergen County-based Traphagen CPAs and Wealth Advisors.“ There are certainly significant pros that we’ ve all read about, whether it’ s the funding, liquidity, and capital to fund other potential acquisitions, organic growth, improved support and technology, and hiring capabilities,” Traphagen says.
Efficiency is another tempting lure for partners.“ Often, small firms use partners for tasks that can be better done by staff or using technology, freeing up valuable partner time for consulting. Larger firms have a bigger resource pool,” he explains.“ You’ ve also got potential for expansion of services with other firms that are consolidating.”
“ We are seeing it as an exit strategy for some of the boomers that really don’ t have the bench strength within their firm and are looking for a buyout. And with PE, you can get upwards of, say, 60 % with another layer provided for the remaining equity piece.”
“ Not every firm will go down the route of PE investment,” predicts NJSCPA’ s Johnson.“ PE investment is a business decision. As the CEO for the State Society, my opinion is based on conversations I’ ve had with firm leaders, not just in my role and my capacity, but also prior experience as the executive director at a global firm association. I’ ve seen both sides. I’ ve been in conversations with those who want to remain independent, and then I’ ve been in the room with those who see private equity as an opportunity.”
According to Allan Koltin, it comes down to EBITDA and partner mindset. In a recent podcast with Capstone Marketing, Koltin explained
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Robert Traphagen, Managing Partner of Traphagen CPAs and Wealth Advisors
Joseph A. Damiano, CPA, CEO, SAX LLP
Aiysha( AJ) Johnson, MA, IOM, Chief Executive Officer and Executive Director of the New Jersey Society of CPAs
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