This blog explores both sides of the equation, outlining some of the bigger benefits as well as the potential pitfalls when considering a PE partnership.
Access to Capital for Growth – The obvious advantage of PE funding is the capital injection. Unlike bank loans that often require collateral and have repayment schedules, PE investment provides immediate equity financing. This capital can be deployed strategically, whether that might be for expanding into new markets, acquiring competitors, investing in technology, or broadening service lines. For firms looking to scale quickly, PE investment can provide the financial resources that organic growth alone cannot match.
Liquidity for Owners and Partners – For founders and long-standing partners, PE deals offer a chance to realize significant personal liquidity. This is particularly attractive for partners nearing retirement or those who want to diversify their personal wealth outside of the business. A partial sale allows owners to take some chips off the table while still participating in future upside if they retain equity.
Operational Expertise – PE firms often bring operational sophistication, strategic planning, and financial discipline. They can help bolster management structures, refine key performance indicators, implement reporting systems, and upgrade processes. For firms that have grown quickly but lack a strong infrastructure, PE backing can provide the expertise and resources needed to scale efficiently.
Talent Recruitment and Retention – An influx of capital can fund new hiring, improve compensation packages, and create career advancement opportunities. Additionally, PE firms often introduce equity incentive programs for key employees, which can help retain top performers and align them with long-term growth goals.
M&A Opportunities – Private equity investors typically pursue a “buy-and-build” strategy. For firms in fragmented industries such as accounting and advisory, this can mean an accelerated path to regional or national scale through acquisitions. PE firms provide not just the capital but also the deal-making experience to execute these transactions successfully.
Loss of Autonomy – By definition, taking on a PE partner means giving up some level of control. Depending on the size of the investment, PE firms often acquire a majority stake, meaning strategic decisions shift away from the original owners. Even minority investments can come with board seats, veto rights, and reporting obligations that constrain decision-making flexibility.
Pressure for Short-Term Results – Most PE firms operate on a three to seven year investment horizon. Their objective is to increase enterprise value and realize a profitable exit, whether that is by selling to another investor, a strategic buyer, or going public. This focus on short- to medium-term returns can create pressure to prioritize immediate profitability over longer-term strategic goals. For example, cost-cutting initiatives may improve margins quickly but could erode culture or client relationships over time.
Cultural Alignment Issues – Professional services firms in particular need to consider cultural alignment. PE investors may not fully understand the dynamics of a people-driven business, where client trust and staff engagement are paramount. Misalignment in values, governance, or risk tolerance can create friction between existing leadership and the new investors.
Leverage Risks – Many PE transactions involve debt financing (leveraged buyouts). While leverage can amplify returns, it also adds risk, especially if cash flows are not sufficient to service debt during downturns. Over-leveraging can leave the business vulnerable, reducing flexibility to reinvest in people, technology, or client services.
Exit and Succession Uncertainty – When a PE firm eventually exits its investment, the business may be sold again, potentially to another PE firm or a strategic consolidator. Owners and employees who remain in the business could face yet another transition, creating uncertainty about the firm’s long-term future.
Before pursuing a private equity partnership, firms should evaluate the following among many other considerations:
Conducting thorough due diligence on the PE firm is just as important as the diligence they will conduct on your business. Speaking with other portfolio companies can provide valuable insights into how the investor behaves as a partner.
PE investment can be a powerful catalyst for growth, transformation, and owner liquidity. It provides access to capital, professional resources, and the ability to scale rapidly through acquisition. At the same time, PE does come with risks – loss of control, pressure for short-term results, cultural misalignment, and financial leverage – that can fundamentally alter the trajectory of a business.
For firms weighing the decision, the key is balance. Carefully analyze whether the opportunities outweigh the risks and ensure alignment with a partner who shares your vision for the firm’s future. With thoughtful preparation and the right partner, PE investment can be a springboard to long-term success.
Joseph A. Tarasco is CEO and senior consultant with Accountants Advisory Group LLC in Bradenton, Fla. He can be reached at joe@accountantsadvisory.com.
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Statements of fact and opinion are the author's responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.