What Happens When Your CPA Firm is Acquired by Private Equity and Why We Plan to Stay Independent

Introduction

A significant shift is reshaping the accounting profession as private equity firms increasingly target CPA practices for investment. This trend has accelerated in recent years, with private equity groups acquiring several prominent accounting firms across the country. What’s driving this interest? CPA firms offer attractive qualities including steady revenue streams, client loyalty, and a fragmented market ripe for consolidation – all factors that make them appealing investment targets.

The traditional partnership model that has defined the accounting profession for generations is now being reconsidered in light of these new capital structures. This development raises important questions about how these changes might affect both CPA firms themselves and the clients who rely on their financial expertise.

How might private equity ownership change your relationship with your accountant?

In this article, we’ll examine what happens when a CPA firm accepts private equity investment, explore the motivations behind this growing trend, and discuss potential benefits and drawbacks for both firms and their clients. We’ll also explain why Langdon & Company LLP has made the deliberate choice to remain independent, preserving our ability to deliver the personalized service and long-term relationships that our clients value most.

Small businesses and individuals who work with CPA firms should understand these industry changes, as they may influence everything from service quality to fee structures. When your trusted financial advisor’s ownership changes, it can potentially affect the advice you receive and how it’s delivered.

The Private Equity Playbook: Why PE Firms Are Investing in CPA Firms

Private equity investors have discovered several characteristics that make CPA firms particularly attractive acquisition targets. Accounting practices typically generate stable, recurring revenue through tax and audit services – services that remain essential regardless of economic conditions. This predictability creates a solid foundation for financial projections that PE firms can leverage when planning investments and growth strategies.

The accounting industry’s fragmented nature presents another compelling opportunity. With thousands of independent firms across the country, there’s substantial potential for consolidation through roll-up strategies where multiple smaller firms are acquired and merged into larger, more efficient operations. This approach allows PE investors to build scale quickly and implement standardized processes across previously separate entities.

“The accounting sector has become a prime target for private equity due to its stable cash flows and fragmented market structure. Investors see significant opportunities to create value through consolidation and operational improvements.”

What makes accounting firms different from other professional service organizations?

Beyond these structural advantages, PE firms also recognize the potential to expand high-margin advisory services. While traditional compliance work like tax preparation remains essential, consulting services typically command higher rates and offer better profit margins. With additional capital, acquired firms can invest in specialized talent and technology to grow these lucrative service lines.

Private equity investment provides accounting firms with substantial resources for technological advancement, talent acquisition, and strategic growth. This capital enables firms to upgrade their digital capabilities with cloud-based solutions, artificial intelligence tools, and integrated workflow systems that might otherwise remain out of reach. Additionally, PE backing creates opportunities for geographic expansion through mergers and acquisitions, allowing firms to enter new markets and serve larger clients more effectively.

The Impact of Private Equity on CPA Firms and Their Clients

When private equity investors acquire a CPA firm, the effects ripple through both the organization and its client relationships. On the positive side, PE investment often brings significant capital for technology investments that can modernize firm operations. This financial support enables accounting practices to implement sophisticated practice management software, data analytics tools, and client portals that enhance service delivery and efficiency.

Partners at PE-backed firms may also benefit financially, at least initially. Many private equity deals include substantial payouts to existing partners, providing immediate liquidity that traditional partnership models can’t match. Additionally, improved operational efficiencies can potentially lead to higher long-term profitability if implemented effectively.

However, these benefits come with important trade-offs that directly affect client service.

Can private equity ownership change the fundamental relationship between a CPA and their clients?

The pressure to achieve rapid returns on investment often shifts priorities toward short-term financial performance. This focus can sometimes conflict with the profession’s traditional emphasis on long-term client relationships and careful, methodical work. Decisions that once centered primarily on client needs may increasingly incorporate investor expectations, potentially altering the firm’s approach to service delivery.

Cultural transformation represents another significant challenge. Accounting firms have historically operated with relatively flat hierarchies where professional judgment and technical expertise were highly valued. Private equity ownership typically introduces more corporate structures with standardized processes and metrics-driven management. This shift can sometimes create tension with experienced professionals accustomed to greater autonomy in client service decisions.

Regulatory considerations also come into play, particularly regarding auditor independence. To address these concerns, many PE-backed firms adopt “alternative practice structures” (APS) that separate audit services from other functions. While this arrangement maintains technical compliance with independence requirements, it creates organizational complexity that can affect how teams collaborate and serve clients.

For small businesses and individual clients, these changes may manifest in various ways. Some might experience:

• Improved technology platforms and expanded service offerings
• More standardized approaches to their work
• Potential staff turnover as the firm culture evolves
• Pressure to fit into service models designed for larger clients that generate more revenue

Why Independence Matters: The Langdon & Company LLP Perspective

At Langdon & Company LLP, we’ve made a deliberate choice to maintain our independence rather than pursuing private equity investment. This decision reflects our fundamental belief that the traditional CPA-client relationship works best when built on direct, personal connections without the influence of external financial pressures.

Our independence allows us to focus exclusively on what’s best for each client’s specific situation. Without investor expectations for rapid growth or standardized service delivery, we maintain the flexibility to customize our approach for each business or individual we serve. We can take the time needed to truly understand your unique circumstances, rather than trying to fit your needs into predetermined service packages designed to maximize efficiency and profitability.

Small businesses particularly benefit from this approach. Unlike larger enterprises with in-house financial teams, small business owners often rely heavily on their CPA for guidance across various aspects of their operations. Our independence ensures we can provide this comprehensive support without pressure to upsell services or meet arbitrary revenue targets for each client relationship.

How does an independent CPA firm approach client relationships differently?

Langdon & Company LLP combines the personalized attention you’d expect from a smaller firm with the technical capabilities and expertise typically associated with larger national practices. We’ve invested in modern technology and specialized talent while maintaining our client-centered approach and local market focus. This balanced strategy allows us to deliver sophisticated solutions tailored to your specific needs – whether you’re a growing small business, a nonprofit organization, or an individual with complex financial concerns.

Our independence allows us to:

• Focus exclusively on client needs without external financial pressures
• Customize our approach for each business or individual we serve
• Take the time needed to truly understand your unique circumstances
• Provide comprehensive support without pressure to upsell services
• Maintain continuity in your financial relationships

This independence doesn’t mean resisting positive change. We continually invest in advanced technology, professional development, and service innovations – but we do so at a pace and in directions that truly benefit our clients rather than meeting external growth expectations.

FAQs About CPA Firms and Private Equity

What is private equity investment in CPA firms?

Private equity investment occurs when outside investors acquire ownership stakes in accounting firms in exchange for capital. Unlike traditional partnerships where ownership rests exclusively with practicing CPAs, PE arrangements bring external financial partners into the ownership structure. These investors typically provide substantial funding to accelerate growth through technology investments, talent acquisition, and strategic mergers. The PE investors aim to increase the firm’s value over a defined period (usually 5-7 years) before ultimately selling their stake to realize a return on their investment.

Why are private equity firms interested in accounting practices?

CPA firms attract PE investors because they offer predictable, recurring revenue streams that continue even during economic downturns. Most businesses require tax and accounting services regardless of market conditions, creating stable cash flows that investors value. The accounting industry’s fragmented nature – with thousands of independent practices nationwide – presents opportunities for consolidation and efficiency improvements. PE firms see potential to build value by combining multiple smaller firms, standardizing operations, expanding advisory services, and implementing more sophisticated marketing and growth strategies across the combined entity.

Does private equity ownership affect the quality of accounting services?

The impact on service quality varies depending on how the PE investment is managed. Access to greater capital can improve technology infrastructure and talent development, potentially enhancing certain aspects of service delivery. However, increased pressure for efficiency and profitability might reduce the time professionals spend on client relationships or lead to standardized approaches that don’t adequately address unique client needs. Some clients report experiencing more turnover among their service teams after PE acquisitions, affecting relationship continuity. Quality outcomes often depend on how well the firm balances investor expectations with professional standards and client service priorities.

What is an alternative practice structure (APS)?

An alternative practice structure divides a CPA firm into separate legal entities to accommodate private equity investment while maintaining compliance with regulatory requirements. In a typical APS, attest services (audits and reviews) remain in a CPA-owned entity to satisfy independence regulations, while tax, advisory, and other non-attest services operate under a separate entity that can include non-CPA ownership. This structure allows the firm to receive external investment while technically preserving independence for audit services. Clients may notice these arrangements reflected in engagement letters, with different entities providing different services, though the firm typically still presents itself under a unified brand.

How does private equity investment impact CPA firm culture?

PE acquisition often brings significant cultural shifts. Traditional CPA firms typically operate as professional partnerships with relatively flat structures and decision-making distributed among partners. After PE investment, firms usually adopt more corporate approaches with centralized management, standardized processes, and metrics-driven performance evaluation. This transition can create tension when long-time professionals accustomed to partnership culture encounter more hierarchical management systems. The emphasis may shift from technical excellence and professional judgment toward efficiency and growth metrics, potentially changing how professionals approach their work and client relationships.

Will private equity-acquired firms still serve small businesses and individuals?

While most PE-backed accounting firms continue serving small businesses and individuals, their approach and priorities often evolve. Efficiency pressures may lead to more standardized service models designed to process work more uniformly. Smaller clients might experience changes in service levels or find themselves working with less experienced staff as the firm focuses senior resources on larger, more profitable engagements. Pricing structures sometimes shift toward standardized packages rather than relationship-based billing. At Langdon & Company LLP, our continued independence ensures small businesses and individuals remain central to our practice, receiving the personalized attention and customized solutions they deserve.