June 11, 2025
Accounting Firms Continue to Innovate in Response to Rapidly Changing Market Conditions
By Don Carpenter, MSAcc/CPA
An announcement in March 2024 that Grant Thornton had agreed to sell a majority interest in the firm to a private equity group, New Mountain Capital LLC, may be a tipping point in the evolution of the profession. Only time will tell, but it is certainly not the first firm to look outside itself or its competitors for capital and innovation.
As this column has highlighted, the profession has faced a new environment in the post-pandemic world. The number of entrants into the profession has been steadily declining. The AICPA 2021 Trends Report reported that the number of individuals taking the CPA Exam in 2021 was less than 70% of those taking it in 2016. And all indications are that the number has continued to decline further.
Firms have considered innovative approaches to recruiting and retaining talent (“Will Others Follow BDO’s Lead to Attract and Retain Staff?” July/August 2024 Today’s CPA issue). A shortage of qualified professionals is a reality even as financial reporting and controls become ever more complex.
Those in specialized areas such as consulting and advisory services have seen prospects dim as higher interest rates have slowed M&A activity. In the area of tax, the IRS continues to expand the rollout of its e-file system to larger numbers of filers creating uncertainty for tax practitioners. But one of the most common reasons cited by students opting out of accounting is concern for their long-term prospects fueled in part by the role artificial intelligence may play.
With firms struggling to attract talented, qualified individuals, the problem quickly becomes the proverbial “chicken and the egg” as they are forced to consider the efficiencies artificial intelligence offers, further raising the angst of those considering accounting careers. Just like investment in staff, however, investment in technology requires capital and often in large amounts (see “Artificial Intelligence Offers Turbo Charged Solutions While Raising Concerns Regarding Security and Professional Integrity” January/February 2024 Today’s CPA issue).
As the earlier article indicated, the Big Four have committed large capital allocations to investments in AI. Regional and smaller firms may be forced to look outside for resources required to remain competitive in a technology driven environment.
It is within this context that Grant Thornton, the seventh-largest CPA firm, announced that it was selling a stake to New Mountain Capital for $2.4 billion. The investment will be in the U.S. arm of Grant Thornton, which accounts for over 10% of worldwide personnel.
In preparation for the transaction, the firm has announced staff reductions of about 350 individuals, which follows reductions made in 2023. In addition, the firm will operate in a split structure, with Grant Thornton LLP offering assurance services and Grant Thornton Advisors LLC providing non-attest services. The investment will give New Mountain control of Grant Thornton pending regulatory approval.
In joint press releases, the principles explain that the investment will be used in part to reduce equity of existing partners and buy out obligations to retired partners. But the primary motivation for the transaction is to provide funding for capital investments in technology, as well as increased acquisition activity.
This is not the first marriage between a CPA firm and private equity, only the largest. In fact, New Mountain Capital acquired a controlling interest in Citrin Cooperman in 2022. With over $700 mm in annual revenues, it too ranked in the top 25 U.S. accounting firms. There appear to be no plans to merge the two firms at this time.
New Mountain Capital is not the only private equity firm to see opportunity in the sector. The first such transaction between a top 25 CPA firm and private equity was in 2021 when TowerBrook Capital Partners invested in EisnerAmper, LLP. In 2022, Cherry Bekaert rebranded itself in conjunction with an equity investment by Parthenon Capital. And earlier in 2024, Hellman & Friedman and Valeas Capital Partners announced a $1 billion investment in Baker Tilley US, LLP.
Has this strategy proved effective? For those earlier transactions, revenue growth has outpaced the pier group; however, much of the growth has been acquisition fueled.
As the partnership activity between CPA firms and private equity gains steam, there are important implications for the profession. Although obviously profit motivated, CPA firms have fiduciary and professional obligations that may conflict with the models that private equity is accustomed to working within. Objectivity and independence may be under pressure as investors consider their returns. And what is the exit strategy for investors who typically invest for four-to-seven-year horizons
Firms are faced with the responsibility of investing this newfound capital wisely and the oversight of the private equity firms might be just the control that ensures this occurs. If the smaller firms are able to leverage these transactions to make the technological advancements that the profession is demanding, it could be the key to helping them keep pace with the Big Four by offering more options for clients and a more competitive environment, which typically drives further innovation. As was stated earlier, “Only time will tell!”
About the Author: Don Carpenter, MSAcc/CPA, is clinical professor of accounting at Baylor University. Contact him at Don_Carpenter@baylor.edu.
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