Accounting Services M&A Update – August 2024

Accounting Services M&A Remains Strong, Private Equity Penetration Surges

Capstone latest Accounting Services M&A Update reports that the Accounting Services sector has experienced seismic shifts regarding business structures and investment strategies. Notably, many accounting firms have pursued private equity backing via the alternative practice structure to accelerate growth initiatives. This has included New Mountain Capital’s acquisition of Grant Thornton (March 2024, undisclosed); New Mountain Capital’s acquisition of Citrin Cooperman (August 2022, undisclosed); and TowerBrook Capital Partners’ acquisition of EisnerAmper (August 2021, undisclosed). Both Citrin Cooperman and EisnerAmper have completed multiple add-on acquisitions since receiving private equity backing.

While the alternative practice structure originated in the Healthcare industry, it has been increasingly leveraged by accounting services firms to-date. The recent heightened adoption of this structure in the Accounting Services sector has been primarily driven by expanding capital needs, increasing interest in complementary advisory services, and employee retention hurdles. Several secular trends have supported robust demand in the space, further driving participants to seek financial backing and execute expansion plans. Elevated sector demand has driven more participants to consider growth strategies, providing a favorable outlook for accounting firm mergers and acquisitions throughout 2024.

Accounting firm mergers and acquisitions have flourished year-to-date (YTD), with 70 transactions announced or completed. Healthy deal activity to-date has been supported by participants’ ability to showcase stable cash flows, significant client retention, and robust financial projections. In addition, an aging Partner population, coupled with sector fragmentation, has created a healthy backdrop for consolidation activity in 2024. Of note, the Big Four accounting firms generated only 18.3% of total 2023 U.S. sector revenue, according to IBISWorld.

Strategic buyers have continued to lead sector transaction activity to-date, comprising 67.1% of deals. Due to federal regulations requiring certified public accountant (CPA) shops to be majority owned by licensed CPA professionals, private strategic acquirers have remained the dominant buyer type (64.3% of deals YTD). However, sector private equity activity has spiked year-over-year (YOY) in YTD 2024 as sponsors have found alternative investment methods to penetrate the space. To-date, financial acquirers have accounted for 32.9% of sector deals compared to 18.9% in YTD 2023. Sponsors have largely focused on buy-and-build strategies, pursing larger platform acquisitions followed by transformative add-ons to rapidly scale the portfolio company. Both private and sponsor-backed acquirers have capitalized on sector fragmentation, with select buyers executing programmatic acquisition strategies. Capstone expects private and sponsor-backed dealmaking to continue driving accounting firm mergers and acquisitions throughout 2024.

Also included in this report:

• What secular trends have supported healthy demand and acquisition appetite in the space.
• Key drivers of sector revenue and profitability gains, including a breakdown of financial performance by firm size.
• Why average purchase multiples in the broader Business Services industry have risen through Q1 2024.
• Several value propositions that accounting firms can harness from private equity backing.

Capstone Partners’ Business Services Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Accounting Services sector. Our team partners with leading mid-to-large sized businesses that serve growing end-markets.

For more information on the Accounting Services M&A trends featured in this report or to speak with one of our Business Services M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.