— Jonathan Mayberry
From time to time we hear news in the profession about private equity transactions occurring within the ranks of midsized to larger CPA firms. Just recently, EisnerAmper did such a transaction with TowerBrook Capital Partners.While at first glance, a private equity infusion could appear to be an effective growth and wealth creation vehicle for CPA firms; there are elements of structure, due diligence, and corporate governance to be considered. ESPOSITO CEO2CEO recently hosted a well-attended webinar “Private Equity and You: Is Private Equity Investment in Your Future?” in which we discussed the opportunities, challenges, pitfalls, and potential outcomes of taking such a step. Since there was good interest in this topic we thought we should share it through our newsletter. In this Perspective, “Private Equity and You” (Part One — Eyes Wide Open) of a two-part series, we offer an introduction to private equity opportunities, and discuss: A background on private equity transactions. Why would you consider a private equity arrangement? What are the trade-offs? Case histories of private equity investments in CPA firms.
First, keep in mind that engaging with a private equity firm may cause a major shift in the way a CPA firm is managed.There are several possible compromises and reasons why private equity firms and midsized and larger CPA firms have not traditionally mixed well, including:
Given the confidentiality of agreements, there is little known about the structures of the deals, goals or projections of the entities at the onset of their agreements, but CBIZ and UHY are examples of successful private equity transactions.
In Conclusion Dependent upon a CPA firm’s size and mix of service offerings, they may be a prime candidate for private equity investment. The timing might just be right: private equity firms are out actively pursuing midsized to large CPA firms in an effort to broaden their client portfolios. For some CPA firms, private equity investment could be the path to growth and building wealth for partners. But such arrangements do not come without trade-offs and compromises. There could be major shifts in corporate culture, goals and structure. With few success stories out there, we advise partners to look at such arrangements with Eyes Wide Open.To learn about ESPOSITO CEO2CEO analysis of the ensuing structure, due diligence, and corporate governance CPA firms can expect to see if engaging in a private equity transaction, look for Part 2 of “Private Equity and You” which will be delivered in two weeks — the Tuesday following after Labor Day.