Private Equity in Accounting Firms: A Game-Changer or a Gamble?

The accounting profession, often seen as conservative and rooted in tradition, is facing an undeniable shift. Private equity (PE), once an outsider to this industry, has stormed its way into the boardrooms of accounting firms, promising capital, growth, and transformation. But does every firm need it? Or is it an alluring but risky bet?

To explore these pressing questions, Shawn Parikh, Founder of MYCPE ONE, sat down with Allan Koltin, a luminary in the world of accounting M&A and private equity from Koltin Consulting Group. Their candid conversation on the lines of the Accounting Today PE Summit unravelled not just the mechanics of private equity but the dilemmas and opportunities it brings.

This is not just another debate - it’s a conversation that could redefine the future of accounting.

The Moment That Changed Everything

It all started on July 1, 2021. On this date, EisnerAmper announced its partnership with TowerBrook Capital, becoming the first major accounting firm to embrace private equity. What followed was a domino effect. Citrin Cooperman joined the PE ranks shortly after, sparking a revolution in the accounting industry.

Koltin called it “the calm before the storm,” noting how the move challenged long-held beliefs about the ownership and governance of accounting firms. In just three years, PE has gone from being a novelty to a transformative force, leaving firms of all sizes questioning whether to join the bandwagon.

The Billion-Dollar Question: Do Firms Really Need PE?

One of the highlights of the discussion was Shawn’s direct question: “Do accounting firms actually need private equity capital?”

Koltin’s answer was nuanced: “It depends.”

For smaller firms content with steady, organic growth, PE might be unnecessary. Many of these firms operate with healthy profit margins, making it possible to reinvest in talent or technology without external funding.

However, for firms aspiring to grow exponentially, build cutting-edge advisory practices, or solve complex succession challenges, private equity offers a faster, more strategic path. Koltin outlined alternative ways firms could raise capital, including:

• Increased Partner Contributions: Requiring equity partners to leave a significant portion of their compensation in the business.
• Bank Loans: Although a viable option, the accounting profession’s aversion to risk makes this less popular.
• Innovation Funds: Setting aside a percentage of annual profits for technology, talent, or acquisitions before distributing partner earnings.

Despite these options, Koltin acknowledged that private equity brings more than just money—it brings expertise, scale, and strategic alignment.

Why PE is More Than Just Money

Private equity’s true power lies in its ability to unlock enterprise value and create wealth. Take Citrin Cooperman, for example. Since partnering with New Mountain Capital, the firm has grown from $315 million in revenue to $850 million in just three years. How? By leveraging PE funding for strategic acquisitions and expansion into new markets.

Koltin explained that PE allows firms to pursue opportunities that would otherwise take decades to achieve. Whether it’s acquiring niche advisory practices or investing in state-of-the-art technology, private equity accelerates transformation.

But this isn’t a one-size-fits-all solution. As Koltin warned, “Private equity is not a silver bullet. It’s not for everyone".

The Mid-Market Dilemma

For mid-sized firms with revenues between $4 million and $30 million, the decision to engage with private equity is fraught with challenges:

• Succession Planning: With partners retiring at different times, there’s often a leadership vacuum that needs to be addressed.
• Divergent Goals: Younger partners may prioritize growth, while senior partners focus on retirement.
• Control Concerns: The fear of losing decision-making authority deters many firms from taking on PE investors.

Koltin urged firms to approach private equity as a strategic partnership rather than a loss of control. “It’s about finding the right PE partner who respects your culture and helps you achieve your goals,” he said.

A Peek Behind the Curtain: The Alternative Practice Structure

Private equity’s entry into accounting has necessitated the use of Alternative Practice Structures (APS) to comply with regulatory requirements. This model separates audit services from tax and consulting services, ensuring independence while allowing PE to invest in the latter.

With a 30-year track record of success, Koltin dismissed concerns about APS affecting audit integrity. “There hasn’t been a single case where external ownership compromised an audit,” he noted.

This reassurance has encouraged even smaller firms to adopt APS as they explore PE partnerships.

Exit Strategies and the Intangible Costs

One of Shawn’s most incisive questions revolved around PE’s exit strategy, particularly in minority ownership deals. Koltin explained that exit routes could include:

1. Buybacks by existing partners.
2. Sale to another strategic buyer or private equity firm.
3. IPO or partial listing of the advisory business.

Yet, the conversation wasn’t just about numbers. Shawn probed deeper, asking whether private equity could erode the values and long-term ownership models that define accounting firms.

Koltin’s response was both pragmatic and optimistic: “It’s about alignment. PE isn’t here to destroy your culture. They’re here to grow your business. But it’s up to you to find the right partner who shares your vision.”

The Verdict: To PE or Not to PE?

For firms grappling with growth, talent shortages, and succession challenges, private equity offers a compelling path forward. But it’s not without its risks. As Koltin emphasized, “Private equity is about building something together. It’s not just about capital—it’s about vision, alignment, and execution.”

This conversation isn’t just for accounting professionals—it’s for anyone curious about the future of business, partnerships, and value creation. To hear the entire episode with unfiltered insights and learn more about the role of private equity in accounting, watch the full podcast episode here.