Private Equity Investment in Accounting Firms: A Look Behind the Curtain

Many private equity investors believe accounting firms have the capacity to provide attractive returns. This feature explains the appeal of firms to investors and some recent activity in the marketplace.

Accounting firms that perform annual audits and tax compliance work offer services that provide recurring revenue – sometimes referred to as annuity revenue streams – that has become attractive to potential outside investors. Because audits and tax preparation services are required in good times and bad, some view the accounting profession as recession-proof – an enticing feature for private equity (PE) investors.

Other areas adding to the allure are that many firms have been in business for decades, have excellent reputations, and have built strong and loyal client rosters. Further, barriers to entry exist as the profession requires specialized skills, knowledge, education, and, in the case of auditors, professional licenses. Some PE firms also see a potential opportunity through the consolidation of a fragmented profession (there are tens of thousands of accounting firms in the United States), thereby gaining economies of scale and achieving cost synergies. Many PE investors believe accounting firms can provide attractive returns to them and their limited partner investors.¹

For example, in early June 2026, Crowe LLP announced that funds managed by the PE firm KKR had made a significant equity investment in Crowe Advisory LLC to become its first institutional capital partner.² Although the press release did not disclose the terms of the proposed transaction, which is expected to close in the third quarter of 2026, an article in The Wall Street Journal (WSJ) indicated it was “a nearly $3 billion deal, in which KKR and co-investors will collectively take a majority stake in the Chicago-based firm, with Crowe partners retaining a minority stake.” WSJ also indicated Crowe is the nation’s 12th largest firm with revenue of about $1.39 billion for its most recently completed fiscal year.³ To comply with CPA independence rules, Crowe said it would set up an alternative practice structure (APS) whereby the newly formed Crowe Advisory – its nonaudit business – will receive KKR’s investment and the audit business will remain a licensed CPA firm.

Shortly afterward, accounting firm Eide Bailly (EB) announced a significant equity investment from funds managed by Reverence Capital.⁴ Again, the press release did not disclose details, but WSJ reported that the transaction, also expected to close in the third quarter, valued the firm at $1.8 billion. EB, one of the top 20 accounting firms in the United States, will sell a majority interest to funds associated with Reverence,⁵ and the firm announced it would establish an APS like the one Crowe is setting up.

These transactions continue a trend across the profession that started about five years ago. According to Joe Tarasco, CEO at Accountants Advisory Group, there have been over 50 notable PE transactions since the early 2020s.⁶

The Historical Compensation Model

For many decades, most accounting firms operated on a book value basis. What that means is that when someone was appointed an equity partner in the firm, they bought into the partnership at a par/unit value or share price (their initial capital contribution). This was often financed with a bank loan for which the partner was individually liable. Over time, most partners would be afforded the opportunity to increase their ownership of the firm, frequently as their level of compensation increased, by making additional capital contributions. Many firms paid some form of interest or preferred return to their partners based on the capital they had invested in the firm. In addition to salary, bonuses, and a share of the firm’s profit or distributable income, many firms also offered their partners pension or deferred compensation arrangements that resulted in a partner continuing to be paid by the firm after retirement.

However, when a partner eventually retired, their capital would be returned to them (sometimes over a period of years) at book value, so the partner would not participate in the increase in the firm’s overall fair value. In many cases, during the time an individual had been a partner/owner of the firm, the overall value of the firm increased significantly, sometimes doubling or tripling. The difference between getting back the book value (or initial cost) of one’s capital versus the fair value could be sizable. Understanding this provides important context for why PE investment has been generating so much interest from firms and their partners. PE investment essentially offers a way to unlock value and achieve a market-based liquidity event that historically hasn’t been available to public accounting firm partners. It also sets up younger and continuing partners for a subsequent liquidity/realization event when a PE firm exits or sells its investment in the firm, particularly if those individuals have been awarded additional equity in the firm based on their performance. Finally, partners selling their ownership interests in a firm can also receive favorable capital gains treatment for tax purposes, which is very attractive in terms of maximizing wealth creation opportunities.⁷

How Accounting Firms Are Being Valued

The predominant method used by PE investors to value accounting firms is to apply a multiple to the firm’s EBITDA (earnings before interest, taxes, depreciation, and amortization) run rate. The multiple can vary significantly, but most transactions that have occurred in recent years have been in the range of 5 to 15 times EBITDA. So, a firm with full-year EBITDA of $10 million could be valued in the $50 million to $150 million range. Some factors impacting the multiple assigned include the following:

• Historical growth rates and trajectory.
• Percentage of revenues that are recurring.
• Client base demographics (i.e., diversified vs. concentrated).
• Billing rates and profitability.
• Employee turnover experience.
• Strength of management team.
• Services offered (commodity vs. specialized).
• Use of technology and offshore resources.

EBITDA multiples also often reflect the market environment. In an active market where deals are competitive (which has been the case recently), multiples tend to be higher.

The Anatomy of a PE Deal

PE investors could acquire 100% of an accounting firm or take a minority position, but many transactions that have occurred to date reflect the PE investors acquiring a majority interest with the accounting firm partners retaining a significant minority interest, which tends to align incentives. What follows is a look at the economics of a hypothetical transaction using the following assumptions:

• The target firm has revenue of $40 million and EBITDA of $8 million.
• The investors are valuing the firm at a multiple of 12 times EBITDA, or $96 million.
• The firm has 10 equity partners, including the founder, who owns 60%.
• The PE investors acquire a majority 65% interest.
• The existing partners, including the founder, retain a 35% interest.
• At closing, after transaction fees, which will likely run between 2% and 2.5% of enterprise value, the founder and his partners will receive between $62.4 million (65% of $96 million) and $70 million, depending on how much of the borrowed funds are distributed versus left in the business for working capital purposes (see discussion of leverage below).

What does the capitalization of the firm look like post-closing? Recall that PE firms commonly use debt/leverage to finance their investments in part. Assuming 30% of the purchase price in the transaction was financed by debt, the cap table for the firm would be as follows:

Often, options or other forms of equity are allocated to younger members of the firm post-closing to keep them motivated and incented. This “management pool” could be in the range of 10% of fully diluted equity. (Not reflected above, but dilution is typically shared pro-rata by the PE firm and the accounting firm partners providing the “rollover” equity.) PE investors and deal sponsors often use the terminology “second bite at the apple” to keep key partners and employees motivated to continue to grow the firm and enhance profitability post-closing. This refers to a potential opportunity to sell their equity interest at a higher valuation in the future when the PE firm exits.

PE firm “hold periods” (the length of time from when the investment is made until when it is exited) can vary greatly based on market conditions and other factors, but four to seven years is not unusual. During this time, the PE firm strives to implement a value-creation plan. While such plans may include investments in technology and other strategic initiatives, they also focus heavily on reducing costs, driving efficiencies, enhancing revenue, and increasing EBITDA. They often include a strategy to acquire smaller firms at lower multiples (multiple arbitrage), again, typically using leverage to improve returns.

One of the first things the PE investor typically does to reduce costs and increase EBITDA is to reduce partner compensation. Reductions vary, but they often range from 10% for younger/newer partners to 50% or greater for founders and senior partners. (Remember, they are the ones who just got the big payday.) The process of reducing partner comp post transaction is referred to as “the scrape.”

In the above example, a good outcome would be if the firm grew organically, improved operating efficiency, made three to four acquisitions, and increased its EBITDA to $15 million annually four to five years later. Assuming a “second bite” transaction at that point, and a higher multiple of 15 times EBITDA, the firm would be valued at $225 million. If the firm had debt of $40 million at the time of the closing of the second transaction (remember, additional funds would have been borrowed to finance those three to four acquisitions), $185 million would be available to split among the PE firm, the partners, and other equity owners (the management pool). In theory, everyone makes money and everyone is happy!

What Could Go Wrong?

There have been many PE investments in accounting firms to date, but there have only been a handful of exits. It will be interesting to evaluate the outcomes of these transactions in the coming years. A skeptical perspective is that the market has gotten a little frothy of late, and some of these deals may not end well. Time will tell, but here are some things to watch:

• Will acquired firms be able to retain their talent?
• Will firms be able to grow organically (the market of late has become extremely competitive, with many firms choosing to compete on price)?
• Will firms be able to retain their clients?
• Are technology investments being made?
• Do firms have an effective AI strategy?
• Do firms have a cost-effective delivery model that includes an offshoring component?
• How might firm culture be impacted by the change in ownership?
• Will acquisitions be effectively integrated and accretive?
• Will firms take on too much debt?
• Is the right management team in place to execute the value creation plan?

The “vintage” of an investment can also be an important factor in the ultimate success/return of the investment from the PE firm’s perspective. My personal opinion is that some of the transactions that occurred early in the current cycle (i.e., the 2022-2023 time frame) are more likely to work out well than some of those that closed in the past 18 months or so. As with any PE investment, broader market conditions are very important, especially when a firm is getting ready for an exit. For example, as of June 30, 2026, despite a very strong stock market performance over the past several years, Bain & Company estimates that PE firms are sitting on roughly 32,000 unsold portfolio companies and that average holding periods have stretched to around seven years.⁸ PE investments obviously lack the liquidity of publicly traded companies, which poses an additional risk to the investors, particularly if the market becomes saturated and there are more sellers than buyers.

Regulatory Concerns

Why did both Crowe and EB (and pretty much every other firm with an audit practice that has taken PE money to date) set up an APS?

In virtually all states and jurisdictions, there are regulations overseen by state boards of accountancy or similar licensing bodies that restrict ownership of CPA firms that perform attest work to licensed CPAs. Accordingly, a PE firm is prohibited from owning an audit firm. As a result, PE firms typically establish an APS in which two legal entities are created: one an advisory firm and the other an attest firm. The PE firm invests in the advisory firm, and the attest firm continues to be owned by CPAs. Within this structure, the advisory firm usually charges a management fee to the attest firm for providing personnel as leased employees and other support services (i.e., office space, administrative support, etc.).⁹

Alternative structures have been in place since the late 1990s, but the rise of PE investments in accounting firms is causing standard-setters and regulators to take a fresh look at these arrangements. The AICPA Professional Ethics Executive Committee (PEEC) issued an exposure draft in December 2025, titled “Proposed Revisions Related to Alternative Practice Structures,” for public comment. The comment period closed on April 30, 2026, and the AICPA is reviewing the feedback it received. The PICPA provided an excellent comment letter, which is available on the PICPA website,¹⁰ expressing major concerns with the proposed standard. The National Association of State Boards of Accountancy (NASBA) also formed a private equity task force that issued the white paper Alternative Practice Structures & Private Equity: Considerations and Questions for Boards of Accountancy, which focused on maintaining audit quality and independence. The Securities and Exchange Commission (SEC) has also expressed concerns about how PE investments in accounting firms could impact auditor independence.¹¹

Some of the larger PE firms who have invested in accounting firms have hundreds of other portfolio companies, raising the potential for conflicts of interest. In my opinion, regulatory bodies and standard-setters will be well served by adhering to a fundamental principle that has guided our profession over the decades: carefully evaluate, through the lens of professional skepticism, the “substance over form” of these arrangements. While the form of a traditional APS may appear acceptable from a legal perspective, the economic substance of these arrangements may raise concerns. Of particular importance is the question of who is evaluating audit partners’ performance and determining their compensation. It is also important that independence be evaluated both in form and in appearance, and that stakeholder expectations be carefully considered by all firms performing attest services, including PE-backed firms.

As those of us who have practiced for many years understand and have observed, even inadvertent independence violations can result in a loss of public trust and confidence and cause a firm reputational and brand damage.

Conclusion

For over 100 years, the accounting profession has thrived by focusing on serving its clients well, creating exceptional career opportunities for their people, and being committed to serving the public interest. Codes of professional conduct, ethics, integrity, and independence are fundamental principles. The history of our profession includes many examples of what can go wrong when our guiding principles are not adhered to. PE investors and the accounting firms they have partnered with should understand this history and embrace these important principles.

In 1934, founding PICPA member Robert H. Montgomery said the following in his introduction to Montgomery’s Auditing:

“With the growth of general public appreciation of the value and usefulness of the services of the professional auditor have come increased duties and responsibilities. More is expected of auditors than ever before.”¹²

Montgomery’s words remain true and serve as an important reminder of our responsibilities to serve the public interest.

¹ Jerry Maginnis, Advice for a Successful Career in the Accounting Profession, 2nd Edition, pages 175-176 (Wiley).
² Crowe LLP press release, June 11, 2026.
³ Mark Maurer, The Wall Street Journal, June 11, 2026.
⁴ Eide Bailly press release, June 23, 2026.
⁵ Mark Maurer, The Wall Street Journal, June 22, 2026.
⁶ Joe Tarasco, “The Rapid Growth of Private Equity Investment in Public Accounting,” LinkedIn post/article (June 16, 2026).
⁷ Advice for a Successful Career in the Accounting Profession, pages 180-181.
⁸ Louis Mosca, “Why Private Equity Keeps Buying Businesses It Can’t Sell,” Forbes (April 28, 2026).
⁹ Advice for a Successful Career in the Accounting Profession, page 180.
¹⁰ PICPA Comment Letter on the AICPA Professional Ethics Executive Committee Exposure Draft - Proposed Revisions Related to Alternative Practice Structures (April 30, 2026).
¹¹ Statement by SEC Chief Accountant Paul Munter: “Fostering a Healthy Tone at the Top at Audit Firms,” May 15, 2024.
¹² Montgomery’s Auditing, 9th Edition, pages vi and vii.

Jerry Maginnis, CPA, is a member of the Pennsylvania CPA Journal Editorial Board and the author of Advice for a Successful Career in the Accounting Profession. (The updated second edition is available on Amazon.) The book includes a chapter entitled “Lessons Learned from the History of the Profession.”