as wall street turns its eyes on mid-sized firms.
by 卡塔尔世界杯常规比赛时间
succession is fast emerging as the defining force behind the private-equity-fueled m&a surge, transforming the accounting profession.
partners in their late 50s, 60s, and 70s — many of whom never documented a transition plan — stare at retirement without successors. that urgency is pushing small and mid-sized cpa firms into the arms of private equity buyers and national consolidators at unprecedented rates.
get more: ask 卡塔尔世界杯常规比赛时间 about the private equity boom
also: private equity in accounting | private equity update: 53 deals, $29 billion | deal or no deal? the p.e. dilemma for cpas | johnston: private equity, shady vendors, and broken software | brannon poe: pe drives prices–and change | behind sorren’s roll-up: $170 million, 1,000 employees, 85 partners | kopelman: culture & capital fuel aprio’s rise | gear up for growth | ira rosenbloom: m&a money’s easy – culture fit’s hard | gary shamis: the private equity hazards for young partners | alex drost: firms get scrappy against pe-backed competitors | tim brackney: don’t blame private equity. blame the accountants |
“it’s no longer a question of whether you need a plan — it’s whether you have the right one,” says james s. pellen, managing partner at hertz herson cpa llp, speaking at a new york cpa society event. “succession isn’t just about retiring; it’s about ensuring the firm survives and thrives after you’re gone.”
private equity is reshaping the options. owners who once could only merge into a larger practice or take a deferred-comp buyout now see opportunities for upfront cash, equity rollovers, and resources to expand their service offerings.
by the numbers
0.8x – lower bound of traditional cpa firm revenue multiple valuation model (0.8x collections).
5–7x – typical ebitda multiple range for small and mid-sized cpa firm deals under current market conditions.
1.2x – upper bound of traditional cpa firm revenue multiple valuation model (1.2x collections).
15x – “citron-sized” pe multiple, achievable by very large platform firms.
50% – desired profitability before partner compensation that makes a firm very attractive to pe buyers.
$10 million – firm size, in annual revenue, that is now a prime target for pe firms.
10-20 years – timeframe comparing the maturity of pe in accounting to its longer history in insurance.
“every partner i talk to is grappling with the same three things. succession, staffing, and capital,” says robert fligel, founder and president of rf resources. “that’s what’s pushing them to the table.”
boris onefater, founder of stable rock solutions, sees this moment as an inflection point. “private equity brings more than money,” he says. “it brings infrastructure, growth discipline, and — let’s be honest — expectations. if you’re not ready for that, you’re not ready for pe.”
what makes a firm attractive — or unattractive — to pe
private equity’s entry has brought a new playbook for evaluating firms.
“great partners, passionate partners, growth-oriented partners — that’s what they want,” says philip j. whitman, ceo of whitman transition advisors, speaking at an accounting today event.
“if you’re dropping 50 percent or more to the bottom line before partner comp, you’re very attractive,” whitman says. “if you’re an ‘end-of-life’ firm with no bench, no growth, and no passion, that’s a harder sell. but even then, there’s often a buyer.”
david wurtzbacher, founder and ceo of ascend, says he’s “looking for middle-market firms with strong cultures, young, energized partner groups aligned around a big vision — but with enough humility to admit they need help”
“if those boxes are checked, we’re excited,” wurtzbacher says. “if not, it’s probably not a great fit for us”.
michael o’donnell, ceo of sorren, adds that buy-in to strategy is non-negotiable: “some sellers want to monetize but keep doing things their way,” he says. “that doesn’t work. we’re looking for partners who join our vision. it’s like joining a high-performance team — you’ve got to buy into the playbook, or it doesn’t work”.
from one-times revenue to sophisticated ebitda multiples
for decades, cpa firms estimated value using simple revenue multiples — typically 0.8x to 1.2x collections. that model is effectively dead.
“buyers don’t want to pay for history — they want to pay for earnings and growth,” pellen says. today, small firms are often valued between five and seven times ebitda, while larger platforms command double-digit multiples. but even those figures are only the starting point.
“you can’t get hung up on a single number,” says whitman. “what used to be a four multiple is now a five. what used to be a seven and a half is now an eight and a half. but the real question is: how are they calculating your adjusted ebitda? what are you keeping on your balance sheet? and how much of your equity are you rolling over? that’s where deals are won or lost”.
o’donnell cautions smaller firms not to assume they’ll get the sky-high multiples they read about. “if you’re a $10 million shop, don’t think you’re getting a citron-sized 15x. those numbers are for huge platforms running a completely different play”.
why firms are signing on
the motivations for pursuing pe deals vary, but the experts point to five main drivers.
- liquidity. “it’s the pot of gold at the end of the rainbow,” whitman says. “instead of working another 15 years for a deferred-comp payout, partners take chips off the table today”.
- administrative relief. “all the hr, it, finance, and marketing — you don’t have to worry about that anymore,” whitman adds. “you can get out of the business of administration and spend more time with clients”.
- talent access. pe-backed firms often bring dedicated recruiting teams, offshoring, and proprietary staffing solutions. “if you’re struggling to hire, they’ve got the infrastructure to help,” wurtzbacher says.
- service expansion. “you don’t have to refer out r&d credits or cost segregation anymore,” o’donnell says. “you can monetize those in-house.”
- succession.“it’s still a baby boomer-dominated profession,” whitman says. “this is a transition play as much as anything else”.
how fast can firms transform?
one major concern for sellers is how quickly their world changes post-closing.
wurtzbacher says ascend integrates “80 percent of a new firm on day one,” with full integration in six months. sorren takes a phased approach, o’donnell adds, “we start immediately on things like workday and tech systems, but we try not to disrupt the day-to-day. integration is disruptive, so we plan it logically.”
that pace matters for staff retention, which panelists agree is a make-or-break factor. “you don’t want to wake up the next morning and force everyone onto a new software stack,” pellen says. “phased migrations over one to two years are critical.”
buying trust, not just a business
even with capital and strategy aligned, deals can implode if cultural integration fails.
“every client relationship represents a lifetime annuity,” pellen says. “that value evaporates if staff feel blindsided or clients feel abandoned.”
wurtzbacher frames it more bluntly. “you’re not just buying a business. you’re buying trust. if you can’t keep the people and the clients, what exactly are you buying?”
pe isn’t going away
how long will this wave last? blackstone’s eli nagler, whose firm backs citrin cooperman, says it’s permanent.
“look at insurance brokerage or the ria space — private equity entered those industries 10 to 20 years ago, and they’re still investing at scale,” nagler says. “accounting has the same profile: sticky client relationships, strong cash flows, and room to add value through technology and expansion”.
whitman agrees. “we’re in the first inning,” he says. “there’s a 10-year run ahead, at least.”
for o’donnell, the reason is “size matters,” adding, “with scale, you can make the investments in tech, talent, and m&a needed to compete. pe is how many firms are going to get there”.
move deliberately, but don’t wait too long
for firms considering their options, the message from the experts is clear: plan early, know your numbers, and be honest about your goals.
“standing still isn’t a strategy,” onefater says. “if you think you can wait it out and sell on your terms at 85, the market will prove you wrong.”
fligel adds, “the firms that prepare — clean financials, clear goals, and a story for growth — are the ones that win. if you’re not ready, you’re not negotiating from strength.”
for whitman, “there has never been a better time to be a cpa firm.”
“but only,” he says, “if you’re willing to evolve”.