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night — professional services firms. That group, attract even larger investors, who may buy out the
they would not be successful,” he said. “The suc- current round of private-equity players, Koltin said.
cessful ones understand the importance of people. But all that depends on whether these firms
They’re not going to micromanage.” can grow at the rates expected by investors,
Instead, he said, an investor should act as Shamis said. The profits of both the investors
“your highest-level strategic and capital partner.” and current partners will depend on whether the
That means investors generally won’t be closely firms can attract a second set of investors in the
involved in the traditional accounting practice future. There’s initial interest now, but the deals
— but they will use their substantial influence are predicated upon the idea that the firms can
within the firm to set goals for growth and grow fast and justify even larger investments in a
resource allocation. future deal.
Accounting firms also must be careful as they “What are the exits going to be? Who wants to
grow their services and scale, whether or not it buy a $1.5 billion CPA firm?” he asked, referring
involves private equity, to respect rules meant to to a hypothetical future valuation for firms that
encourage independence in auditors, according struck deals. If there’s no buyer waiting, a firm’s
to Melancon. partners might find themselves buying the orga-
“Private-equity deals for firms require firms and nization back from their investors — as “damaged
leadership to be extra focused on independence goods,” he said.
and standards of the profession. The profession The outcomes just aren’t clear yet, Shamis
is attractive because of its competency and the added. “I think you’re going to see more firms do
trust it has built in the market. Firms in this it. They don’t want to miss out, so I think you will
environment have to prioritize tone at the top on see the acceleration pick up. But we’re not going to
ethics, independence, and trust. Commitment to know any answers until five years down the road.”
those concepts creates the value and, regardless of Meanwhile, the same tidings of change are
structure, has to be a priority,” he said. seeping out even to the smallest firms and con-
Citrin Cooperman ensures the profession’s sultancies, where the managers of much smaller
independence rules are followed by relying on investment groups are reaching out to potential
its chief risk officer, Patricia Cummings, and partners like Paula Waggoner-Aguilar and her
her sizable team, including the firm’s Office of family business in Texas.
Independence, which reviews new clients and “When it started, the large private-equity firms
conducts robust independence and background were only interested in the top 20 accounting
checks, Cooperman said. firms,” Koltin said. Now, he said, he’s hearing
And, overall, the accounting executives in from smaller private-equity firms and individual
these deals said concerns about private-equity family offices looking into accounting firms that
partners are real but manageable. It’s paramount, have revenue in the range of $10 million to
they said, to find the right investors. $150 million.
“You need to make sure your investor has a For now, Waggoner-Aguilar doesn’t want to
thesis in the space,” Thompson said. In other join the trend.
words, investors should be well versed in the “I’m still very young and focused on building
accounting profession, with a specific plan for my own business,” she said. Waggoner-Aguilar
how their investment will help a company grow. is a former global energy finance and accounting
“It shouldn’t be ‘This looks interesting.’ They need executive who left the corporate ranks to focus
to understand our industry.” on private, middle-market companies almost a
decade ago. Seeing the interest in her business was
WHAT TO EXPECT NEXT both flattering and intimidating, she said, since it
Negotiations between more firms and investors are signaled a larger restructuring was underway that
ongoing, Koltin said. But future deals will likely be could upend the profession.
influenced by how investments that have already “They’re talking to plenty of firms. I know I’m
been made shape up. not the only one,” Waggoner-Aguilar said. Friends
Cooperman projected that many of the top 200 and colleagues have heard from investors, too —
firms will either take investments or be acquired by a and many more accounting businesses, large and
larger, equity-backed firm in the years ahead. And if small, may soon accept the offer of investment and
those investments are successful, the firms soon will the changes it brings. ■

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