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Whitman Transition Advisors CEO Phil Whitman presented an update on the private equity landscape for accounting firms at the Accountants Club of America last Thursday on Zoom. There was a lively Q&A session afterward. This obviously is a hot topic.
Phil is one of the nation’s most experienced CPA firm M&A deal managers. He is right in the middle of it, advising buyers and sellers and helping put into place innovative new financing options. While private equity ownership is still in its infancy, many large firms have made deals, including Accounting Today Top 25 Firms EisnerAmper, Citrin Cooperman and Cherry Bekaert.
Phil provided plenty of valuable information but perhaps the greatest eye-opener was the range of firms interested in acquiring accounting firms or interests in such firms, in addition to traditional accounting firms. The acquirers are mainly private equity firms but also include wealth management firms, family offices, publicly traded companies, pension funds and consulting firms. There is a much greater playing field and this has driven the values up, presenting greater opportunities certainly for the sellers but also for the younger staff who can acquire eventual partnership positions without assuming huge debt and have a built-in personal wealth enhancement market.
Edward Mendlowitz
Private equity deals are priced based on EBITDA multiples, which usually result in greater valuations than the traditional partner buyout arrangements used by accounting firms, and present an expectation of a secondary transaction in the future based on market conditions. This provides an immediate monetization of the practice’s value with the possibility of an additional monetization round.
Phil suggested that private equity acquirers also would commit added capital to the company to try to drive growth, add services, and to create synergy among their portfolio companies and quicker growth opportunities for younger staff. He also presented an alternative practice model that involved a holding company,an employee-leasing company, separate entities for audit, tax, advisory and wealth management services and a management entity. He indicated in his model how non-CPAs could own interests in a CPA firm, carefully pointing out that today’s and tomorrow’s CPA practice business model is not the same as yesterday’s.
All in all, his presentation, plus his responses at the Q&A session, were mind-boggling, extremely informative and gave an insider’s look at something that is just starting to take off.
The Accountants Club of America membership is open to accountants and people in related fields and provides a whole array of programs. It will be starting its 2023 programs with AICPA president and CEO Barry Melancon on Jan. 11 in person and also on Zoom. Information about the ACA is available at https://accountantsclubofamerica.org/.
Do not hesitate to contact me at emendlowitz@withum.com with your practice management questions or about engagements you might not be able to perform.
