Accounting

Private equity gets its biggest accounting firm yet

Grant Thornton is the fifth top-26 firm to partner with a PE firm since 2021.
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It’s almost like private equity firms are using the Inside Public Accounting rankings of largest accounting firms as a shopping list.

In 2021 and 2022, PE firms bought stakes in EisnerAmper (18th largest by revenue), Citrin Cooperman (23rd), and Cherry Bekaert (26th).

Then in February, Hellman & Friedman and Valeas Capital Partners bought a reported majority stake in Baker Tilly (10th largest).

Last week’s announcement concerned the highest-ranking CPA firm yet: New Mountain Capital said they’d be buying a stake in Grant Thornton, which reported $2.4 billion in revenue for the fiscal year ending July 2023 and, at #7 on the IPA rankings, is smaller than only two firms outside the Big Four.

Adding it all up: PE firms have bought stakes in five of the top 26 US accounting firms in less than three years.

Now that one has bought the seventh-largest CPA firm, could private equity go for the sixth- and fifth-largest, BDO and RSM? Allan Koltin told the Journal of Accountancy last year that “more than half” of the top 20 firms are discussing deals “[involving] private equity.”

There may be a limit to how high private equity can go for now. Last year, EY told TPG Capital it wasn’t interested in selling a stake in its consulting business. Besides ceding some control to TPG, EY would have had to spin off its auditing business to comply with SEC rules.

Those were tradeoffs that Grant Thornton CEO Seth Siegel was willing to make. Grant Thornton Advisors LLC will be split from the auditing arm, Grant Thornton LLP, to offer consulting and non-audit accounting services. The deal will give Grant Thornton “greater scale, resources and agility, while better positioning the firm to make targeted investments in talent, technology, infrastructure and enhanced capabilities,” Siegel said in a press release.

Meanwhile, PE firms have been working their way through a field that they see as ripe for the consolidating, the Journal of Accountancy reported.

Accounting firms, worried that automation and other technology “is going to cause evaporation of our revenues,” Koltin told the Journal of Accountancy, need money to invest in that tech. Others want the cash to move into advising and consulting, he said.

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CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.