Private Equity and Professional Services: The New Landscape for USA Accounting Firms

Executive Summary

The USA accounting profession is experiencing its most significant transformation in decades, driven by unprecedented private equity investment. Since 2021, PE firms have poured over $50 billion into CPA firms, fundamentally reshaping competitive dynamics, service delivery models, and growth strategies across the sector.

With 10 of the Top 30 USA accounting firms now backed by private equity, and total valuations exceeding $200 billion, this capital influx is creating a new competitive landscape. Traditional partnership structures face pressure from PE-backed consolidation strategies, while technology demands and talent shortages accelerate the need for outside capital.

This report examines the drivers, implications, and strategic responses necessary for accounting firms navigating this transformed marketplace.

1. Market Consolidation Drivers: Capital and Scale Economics

Technology-Driven Transformation

The accounting profession faces unprecedented technology investment requirements. Artificial intelligence, automation, cloud infrastructure, and cybersecurity demand capital exceeding what traditional partnership structures can provide.

Capital Requirements Include:

• AI-powered audit and tax software

• Data analytics and visualization platforms

• Cybersecurity infrastructure

• Client portal and collaboration systems

• Cloud migration and infrastructure modernization

Traditional firm structures, where partners fund technology investments from current year profits, struggle to compete with PE-backed firms deploying tens of millions in technology capital.

Economic Scale Advantages

PE investment enables firms to capture scale economies across:

Technology and Infrastructure:

• Shared platforms across merged entities

• Centralized IT and cybersecurity

• Enterprise licensing cost advantages

• Reduced per-user technology costs

Talent and Compensation:

• Competitive compensation structures beyond traditional lockstep

• Equity compensation mechanisms

• Specialized recruitment teams

• National talent mobility

Service Delivery:

• Centers of excellence for specialized services

• Offshore and nearshore delivery models

• Standardized processes and quality control

• Cross-selling across expanded client base

2. Private Equity Investment Rationale: Defensive Growth Characteristics

Attractive Business Model Characteristics

Private equity finds accounting firms attractive for several reasons:

Recession-Resistant Revenue:

• Regulatory compliance creates non-discretionary demand

• Recurring client relationships with high retention

• Counter-cyclical advisory opportunities (restructuring, cost reduction)

• Diversified client base across industries

Fragmented Market Opportunity:

• 40,000+ accounting firms in USA

• Vast majority are small, local practices

• Limited previous consolidation activity

• Clear pathway to roll-up strategies

Predictable Cash Flows:

• Monthly retainer structures

• Advance billing for tax season

• High-margin advisory services

• Working capital advantages from client prepayments

Investment Return Mechanisms

PE firms deploy multiple strategies to generate returns:

1. Revenue Growth:

• Aggressive M&A strategies (EisnerAmper: 14 acquisitions post-investment; Citrin Cooperman: 13 acquisitions)

• Cross-selling expanded services across merged client bases

• Geographic expansion into new markets

• New service line development

2. Margin Expansion:

• Technology-driven productivity improvements

• Offshore/nearshore delivery models reducing labor costs

• Process standardization across merged entities

• Shared services reducing overhead

3. Multiple Arbitrage:

• Acquiring smaller firms at lower multiples

• Building scale platform justifying higher exit multiples

• First major PE-to-PE flip: Blackstone's $2 billion acquisition of Citrin Cooperman from New Mountain Capital in January 2025

3. Regulatory Framework: Navigation and Transaction Structuring

Professional Standards Compliance

SEC Office of the Chief Accountant issued guidance on maintaining auditor independence amid PE investment, noting that "mercurial nature of PE investments can create even greater challenges for maintaining auditor independence."

Independence Requirements:

• Non-CPA firms cannot own audit/attest firms

• Alternative practice structures (APS) required to separate audit from consulting/tax

• Regulatory oversight of independence maintenance

• Disclosure requirements for complex ownership structures

Transaction Structure Implications

Most PE investments utilize alternative practice structures:

Typical APS Structure:

• Audit/attest practice remains CPA-owned

• Tax and advisory services sold to PE-backed entity

• Service agreements between entities

• Shared resources and infrastructure

Regulatory Considerations:

• Independence maintenance protocols

• Conflicts of interest management

• Quality control across separate entities

• Client consent and disclosure requirements

Valuation and Pricing Trends

PE investment has driven valuations higher:

• Baker Tilly + Moss Adams merger valued at approximately $7 billion (2025)

• Blackstone's Citrin Cooperman stake valued at $2 billion (2025)

• Total PE-backed firm valuations estimated at $200 billion

• Valuations increasing as competition for quality firms intensifies

4. Competitive Implications: Traditional Partnerships vs. Scaled Platforms

Competitive Advantage Evolution

PE-backed firms gain multiple competitive advantages:

1. Talent Acquisition and Retention:

• Compensation packages exceeding traditional partnership structures

• Equity compensation mechanisms

• Career path clarity with defined advancement

• National mobility opportunities

2. Client Service Capabilities:

• Broader service offerings through acquisitions

• Geographic reach matching multi-location clients

• Technology platforms enabling efficient delivery

• Industry specialization depth

3. Market Positioning:

• Mightier mid-tier firms better positioned to compete with Big Four

• Enhanced brand recognition through marketing investment

• Thought leadership and visibility

• Larger deals and RFP competitiveness

5. Strategic Response Framework for Professional Services Leaders

Strategic Decision Integration

Firm leaders face critical strategic decisions:

For Firms Considering PE Investment:

Advantages:

• Capital for technology investment

• M&A capacity for growth

• Competitive compensation structures

• Professional management infrastructure

Considerations:

• Partnership culture evolution

• Control and decision-making authority

• Exit expectations and timeline

• Independence and ethical considerations

Operational Excellence Enhancement

Regardless of ownership structure, firms must enhance:

Technology Infrastructure:

• AI and automation adoption

• Data analytics capabilities

• Cybersecurity infrastructure

• Client collaboration platforms

Service Innovation:

• Advisory services expansion beyond compliance

• Industry specialization development

• Outsourced CFO and controller services

• Fractional executive services

Talent Strategies:

• Competitive compensation structures

• Alternative career paths beyond partner track

• Work flexibility and remote options

• Upskilling and continuous learning

Financial Planning Modernization

Firms should enhance financial management:

Key Performance Indicators:

• Revenue per professional

• Realization rates by service line

• Client profitability analysis

• Working capital management

• Technology ROI measurement

Strategic Resource Allocation:

• High-growth service line investment

• Underperforming service line evaluation

• Geographic expansion analysis

• Build vs. acquire decision frameworks

M&A and Partnership Considerations

Traditional firms must evaluate M&A options:

Strategic Acquisition Criteria:

• Geographic complement

• Service line enhancement

• Cultural alignment

• Client base compatibility

• Technology platform integration

Partnership Structures:

• Alliance models without merger

• Shared services arrangements

• Referral networks and co-sourcing

• Technology platform sharing

Future Outlook and Conclusions

The accounting profession's transformation will accelerate. By end of 2025, more than half of the largest 30 USA accounting firms will have PE involvement, up from zero in 2020.

Key Predictions:

1. Continued Consolidation: PE-backed firms will aggressively pursue acquisitions, reducing market fragmentation

2. Valuation Pressure: Competition for quality firms will drive valuations higher

3. Service Evolution: Technology-enabled service delivery will become standard, not differentiator

4. Talent War Intensification: Competition for skilled professionals will increase compensation pressure

5. Regulatory Evolution: Increased oversight of PE-backed firm structures and independence

Critical Success Factors:

Traditional firms must:

• Make decisive strategic choices about capital and growth

• Invest significantly in technology or risk obsolescence

• Develop competitive talent strategies

• Consider strategic partnerships or combinations

• Enhance financial management sophistication

PE-backed firms must:

• Maintain audit quality and independence

• Integrate acquisitions effectively

• Deliver promised returns to investors

• Navigate regulatory scrutiny

• Preserve professional culture amid commercialization

The accounting profession has entered a new era. Firms that acknowledge this reality and adapt strategically will thrive. Those that cling to traditional models risk irrelevance in an increasingly consolidated, technology-driven, and capital-intensive marketplace.

About the Author

Suresh Iyer turns financial uncertainty into strategic clarity. With 25 years spanning Big Four audit leadership, corporate finance, and fractional CFO work, he guides publicly traded companies and high-growth startups through IPOs, complex transactions, and transformational growth bringing technical precision and forward-thinking strategy to organizations that refuse to settle for reactive reporting.

JHS USA provides audit, tax, and advisory services to professional services firms navigating growth, transformation, and strategic transactions. Our team brings deep expertise in firm valuation, M&A advisory, and operational optimization for accounting and consulting firms.

Contact JHS USA today to discuss your firm's strategic options.

This report is for informational purposes only and does not constitute financial, legal, or transaction advice. Firms should consult with qualified professionals regarding their specific circumstances.

Copyright © 2025 JHS USA. All rights reserved.