Will PE eat the Big 4’s lunch?

In the last six years, there have been 65 significant PE deals in the CPA and accounting sector. But 26 of those have been in the last 9 months alone. Private equity’s lean governance formula is a far cry from the model that has dominated the profession since Samuel Lowell Price inked the first formal accounting partnership in 1849. And with plenty more PE dry powder ready to deploy towards rolling up firms, it’s time to ask why now? And what does it all mean? 

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Read time: 10 minutes 2 seconds
⧗ Written by Katishi Maake and Secret CFO

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Before 2020, none of the top 30 US accounting firms had PE capital. It’s now forecast half will have some form of PE investment by the end of the year.

You can see the appeal, accounting firms have pretty durable revenues, even during uncertain times. Pair it with a fragmented market and the potential for breakthrough efficiencies with AI, it’s no wonder they’ve proven a mouth-watering opportunity for the private equity roll-up playbook.

We’ve seen a few landmark deals this year:

In January, Blackstone ignited the powder keg with a $2 billion majority acquisition of Citrin Cooperman. And shortly after, in April, Baker Tilly and Moss Adams merged to create the US’s sixth largest CPA firm (supported by their existing PE investors.) Deal volume is growing in a mature industry - it smells like consolidation.

But what does this all mean?

PE has flocked to the accounting sector in the absence of value elsewhere.

Allan Koltin, CEO of Koltin Consulting Group - who broker PE investments into accounting -  told us that deal valuations for accounting firms had increased since 2021 - giving partners of firms a good motive to sell up. 

So why have multiples increased in accounting firms when the reverse has been true in most other sectors? Accounting firms have predictable recurring revenue and a stable mix of income streams, making the industry functionally recession-proof.

According to CPA Trendlines, average revenue per employee in the sector is ~$268,763 and average pay per employee is ~$90,988. It seems the charge out rate : salary ratio of 3:1 remains undefeated.

The PE value creation playbook - as ever - will target growth in operating profits:

And crucially, the centralized decision making structures that a PE board demands will cut through and make these things happen faster than they might do under a traditional model.

There are estimated between 40,000 and 50,000 CPA firms in the United States, but institutional private equity only cares about investing in the 500 largest.

Jack Healey – founder and CEO of Bear Hill Advisory Group, which provides advisory services to PE firms – told us. Scale is key to success.

PE needs to know the businesses are big enough for the juice to be worth the squeeze.

So, if the value creation thesis for Private Equity is clear, what is the appeal for accounting firms?

One reason is that it gives existing partners an opportunity to realize value at strong valuations on equity that, until now, has been illiquid. But Koltin and Healey both agree it goes deeper than that. Introducing ambitious investors gives the more dynamic corners of firm management a chance to clear out the board room, and give capital for expansion and efficiencies via technology investment. 

Part of that new capital will be put to work in offshoring talent, which needs large upfront investments to unlock savings. Today, 95% of the top 100 firms have embraced offshoring, Koltin said. Before 2019, that figure was negligible (outside the Big Four). A sharp shift, after the pandemic forced remote working and proved that a distributed work model could actually work in the sector.

Fresh investment also arms accounting firms with the capital needed to acquire other niche smaller firms which can then be cross sold across the portfolio. These kinds of moves were reserved for only the biggest firms until lately. 

“Consulting and advisory services will grow rapidly,” Koltin said. “But to buy those companies, we don’t have a checkbook in accounting, so we need a capital partner. Anyone with capital is a qualified partner, and that has caused the explosion we’re seeing today.” 

Historically, M&A between accounting firms has essentially been a merger underpinned by equity-for-equity deals. But with new capital at the table, it gives incumbent partners a chance at a liquidity event (and a retirement plan) Healy said. 

“Accountants, by nature, are conservative and steady,” he said. “They’ve grown these firms slowly over decades, but they’ve had no liquidity.” That is, until PE showed up.

Healy pointed out that new tech and automation initiatives are decreasing total billable hours, which have long been the lifeblood of accounting firm economics. This means they’re being forced to rethink their business models and charging structures. 

Expect an acceleration in the profession’s shift from hourly billing to project-based or value-base pricing, he said. Firms and their PE backers will be looking to get more credit for the result vs. time spent on the work. The challenge for PE will be achieving the margin expansion in their investment thesis while aggressively undercutting the Big 4 to win bigger advisory work.

A new model moves the goal posts for everyone, from partners down to the rank and file.

And for the foot soldiers, there’s the potential for a more dynamic working environment - which the innovators hope will attract a new kind of talent to the industry.  Anyone who’s been inside an accounting firm (or has worked with one) knows they don’t exactly have ‘move fast and break things’ on the list of values on the wall.

But Koltin believes this is a positive for the profession: “Private equity saw the dysfunction of the traditional partnership model - where everyone’s an owner, anyone can say no, but often no one can say yes.” That’s bound to accelerate decision making.

But Healey believes there is more of a note for caution. He said it won’t take long before the same cultural challenges, seen in any PE roll-up, start to appear: “A lot of the people who go to non-Big Four firms didn’t want to work for a Big Four firm. They went to work for a regional firm, and now that regional firm is very large and they’re beginning to feel that [culture shift]. And that rubs off on the client as well.” 

Despite 2025 - so far - logging 2x as many PE-related accountancy transactions year-on-year, there is no sign of things slowing down

Koltin explained that PE will continue to consolidate the market among the next 25 biggest firms. He described the “firm of the future” as digitally-enabled, advisory-focused, capital-backed, and globally integrated.

And maybe, just maybe, one of these roll ups could get big enough to penetrate the Big 4 stranglehold of the top end of the market.

But the Big 4 are anything but stupid; they won’t be sitting on their hands. Koltin said it’s possible they could spin off their audit practices and pursue an IPOs for their advisory arms. Independence rules and regulatory pressure keep tightening on the firms who audit the largest public companies, making it harder than ever to cross-sell non-audit services to audit clients. This has eroded the long-held economic logic of keeping both sides under one roof.

EY attempted but abandoned a plan to separate its audit and advisory businesses in 2023 under its much fabled “Project Everest” banner. 

The big question now is how the Big 4 respond to this latest challenge. They’re defending advisory fees against aggressive, PE-backed challengers while navigating the toughest regulatory environment they’ve faced in their audit business. It’s a brutal balancing act.

Healey said, “If they start losing clients [to them], then you’ll see a reaction out of [the Big 4]…because I think they’re looking at this as an opportunity.” 

Break the popcorn out, this is only just getting started.

The PE invasion of Top 30 accounting firms hits closer to home for CFOs than you might think — it’ll shape the future talent supply chain feeding finance teams.

The questions your board will ask - beat them to it: