Private Equity Accounting Firms: What Partners Should Negotiate Before Selling

Partners who think private equity is an experiment are about three years out of date. Bloomberg Law reported that private equity arrangements had poured at least $2 billion into public accounting in just three years, and that about a quarter of the 30 largest US firms made similar deals in 2024. CPA Trendlines, a vendor tracker, reports that PE has taken stakes in at least 11 of the 30 largest firms, including New Mountain Capital's 60% stake in Grant Thornton's US unit in May 2024.

The totals are large. KPMG Corporate Finance reports that private equity firms have invested over $50 billion in CPA firms over the past six years, with 11 of the 30 largest US firms backed as of the third quarter of 2025. A National Bureau of Economic Research paper linking more than 3,600 PE transactions between 1999 and 2024 finds that investment rises sharply after 2020 and extends to both CPA-licensed audit firms and non-CPA advisory practices, with most activity in large mid-tier PCAOB-registered firms.

Penetration thins quickly below the top tier. A Sorren adviser told KPMG Corporate Finance that five percent of the top 2,000 US accounting firms have some form of private equity, and predicted that figure would exceed 50% in five years. That is an adviser's forecast, and advisers have a stake in the answer, but the direction is consistent with CFO Brew's count of around 24 of the top 100 CPA firms. Mid-sized and regional firms are the next frontier.

For a managing partner, the implication is that the precedents now exist. Terms have been tested, advisers know the playbook, and your competitors for talent and clients may already have capital that you do not. Waiting is also a choice, because sponsors can use acquisitions to enter your market, and because the best sponsors will have filled their pipeline. The question to settle first is whether your firm's own plan needs outside capital at all, and if so for what.

A useful way to frame the choice is to separate the sponsor's money from the sponsor's model. Capital can be raised elsewhere, through bank debt, partner contributions or a minority investor. What a sponsor adds uniquely is a repeatable method for acquiring, integrating and professionalising firms, together with a network of advisers. If your firm needs only capital, there may be cheaper routes. If it needs a method, the sponsor conversation is more relevant, and the sponsor's references become the main diligence item.

Capstone Partners data, reported by CPA Practice Advisor, show a record 194 accounting-firm transactions in 2025, with volume up 26% year over year. The momentum has continued: in 2026 to date, volume rose 14.8% to 62 deals. More importantly, who is buying has shifted. Financial acquirers such as PE groups accounted for 54.8% of accounting firm M&A in 2026 to date, against 38.9% a year earlier, with PE-led deal volume up 69.1%.

The scale of individual transactions has also grown. CPA Trendlines notes that Baker Tilly's merger with Moss Adams was valued at about $7 billion, and that Blackstone's $2 billion stake in Citrin Cooperman in 2025 marked the first major PE-to-PE ownership flip. Baker Tilly itself, which cut a deal with Parthenon Capital in 2022, more than doubled in size and made at least 11 acquisitions before the merger, a reminder that the sponsor model is built on buy-and-build as much as on organic growth.

Europe offers a preview of where the market may go. Accountancy Europe counted 385 PE transactions in accountancy and audit across Europe in 2025, of which 139, or 36%, involved audit firms. The UK recorded 92 of those transactions, followed by Norway with 78 and Sweden with 53. Europe's regulatory frameworks differ from the US, but the pace shows that sponsor interest in accounting is not confined to one country or one regulatory model.

The implication for partners is that this is a seller's market with a limited shelf life. Sponsors are competing for good firms and paying for growth, and a record volume of transactions gives you comparable deals to cite. But every sponsor needs to exit, and buyers eventually run out of firms to buy. Do not rush to catch a peak that may not be a peak, and do not assume the terms available today will remain as generous for firms that sell late.

Sellers should also read the cycle honestly. A rising count of transactions reflects abundant sponsor capital and a supply of willing sellers, and both can change with interest rates, credit availability and the performance of early deals. The firms that sold first will be tested when their sponsors seek exits, and the results will influence how later sellers are valued. That is a reason to build your case on durable earnings, not on a momentum story that bidders can discount.

Most US transactions follow a recognisable pattern. NJCPA describes a structure in which PE buys 60% and partners retain 40% as rollover equity, reinvested into the deal. Where the retained stake sits matters, because it determines whether partners control their own destiny. At the Accounting Today PE Summit in 2025, an adviser said upfront cash at closing averages 50% of the price, with deals ranging from 25% to 60%, and with the balance deferred over five years.

Valuation follows the same logic. NJCPA reports that firms once fetching 3.5x to 5x EBITDA now command 4.5x to 8x, depending on niche and geography, and that eligibility generally needs EBITDA of at least 15% of revenue after the partner scrape, meaning after partners are paid a market salary. Multiples are visible and attract attention. The EBITDA to which they are applied is where much of the value is won or lost, because definitions of adjusted EBITDA vary widely.

That makes the earnings definition the first negotiating item. Agree in writing which add-backs are accepted, how partner compensation is normalised, how work in progress and unbilled revenue are treated, and which one-off costs are excluded. A higher EBITDA at a slightly lower multiple can produce a bigger enterprise value than the reverse. Partners should also model the effect of normalising their own pay: a firm with strong partner distributions may find that its adjusted earnings are lower than its distributable profit suggested.

The cash and deferral terms need equal attention. Deferred consideration is an unsecured promise from an owner that may carry acquisition debt, so ask what ranks ahead of it, what can trigger acceleration or reduction, and whether it is protected if the sponsor sells or refinances. Understand what the rollover buys: which class of equity, with which preferences, alongside whom, and subject to which transfer restrictions. A clear summary of the capital structure, prepared by your own adviser, is worth more than a slide in the sponsor's deck.

It helps to run the arithmetic on a simple illustration, using only your own numbers. Take your normalised EBITDA, apply the range of multiples you are being offered, and calculate the cash at closing, the deferred amount and the rollover for each partner. Then model what each partner receives under three second-sale outcomes: a higher, a flat and a lower valuation. Many partnerships discover that the spread between scenarios is larger than the gap between competing bids, which shifts attention to structure.

Sponsors hold investments for a limited time. CFO Brew reports that PE funds have taken ownership of around 24 of the top 100 US CPA firms and typically hold investments for only three to five years, maybe seven at the outside. That makes the exit the centre of the deal. When a firm is sold again, the rollover equity that partners retained becomes their second payment, and the price at which the sponsor sells determines how large that payment is.

Recent flips show the potential. CFO Brew reports that New Mountain paid about 11x EBITDA for its share of Citrin Cooperman, and that Blackstone bought a stake at approximately 15x. Partners who rolled equity at the first valuation benefitted from the rise. But the same pattern depends on a supportive market, rising earnings and available financing. A second sale at a lower multiple, or with higher debt, can leave rollover holders with less than they expected, and no one can promise otherwise.

The real risk is distribution of liquidity across generations. The adviser at the Accounting Today summit noted that PE groups often limit younger partners to selling 20% or 25% of their equity at the second liquidity event, and warned that if younger partners retire at 45, the buyer's retention goal fails. Both comments point to the same design problem: older partners are paid at the first sale, while younger partners depend on the second and want enough liquidity to justify staying.

Partners should therefore negotiate the second-sale mechanics at the first sale. Seek tag-along rights, so that you can sell on the same terms as the sponsor, and information rights so that you can follow performance. Understand any drag-along that forces a sale, and the minimum return or holding period required. Check whether management incentive plans share fairly across generations, and whether leaver provisions penalise genuine retirement. Treat these as the economics of the deal, not as legal boilerplate to be left to the lawyers.

There is a human side to liquidity that spreadsheets miss. Senior partners often want certainty and a clean exit; younger partners want growth and a stake that rewards effort. A well-designed deal gives each group what it values, for instance through staged sales, partner-level incentive pools and retirement provisions that do not punish an orderly handover. Discuss these trade-offs openly inside the partnership before bidders exploit the differences between generations.

Accounting differs from other professional services because audit independence is a public-interest requirement. In the US, the usual route is an alternative practice structure, in which a PE investor holds a stake in a non-attest entity closely aligned with a CPA firm. The AICPA's ethics committee has issued an exposure draft that would treat a PE investor, its funds and other portfolio companies as generally not network firms, with comments due by 15 June 2025. Rules are therefore still being refined.

Regulators are watching. PCAOB staff have warned that PE risks include threats to auditor independence and audit firm culture, and that a short-term focus may shift incentives so that profitability outweighs audit quality. They have also raised the possibility that roll-ups reduce the number of firms auditing public companies. A partner whose firm has public-company audit clients should expect the sponsor and its advisers to answer questions about conflicts across the whole portfolio, not just inside the firm being bought.

The profession itself is divided. In the State of PE in Accounting 2025 survey of 304 accountants, 35% said they are not at all open to PE investment, and roughly 30% were at least somewhat open. The UK's Financial Reporting Council notes that the UK audit market is dominated by 100 per cent partner-owned registered audit businesses, and that audit firms must be controlled by qualified professionals. Local rules and professional sentiment will shape client, staff and partner reactions to any announcement.

The practical protections are contractual. Require covenants that the attest firm remains controlled by licensed professionals, that independence decisions are taken by them without sponsor direction, and that the firm can decline or resign from engagements that create a conflict without penalty. Ask the sponsor for a portfolio-wide list of relationships that could affect independence. Set audit-quality measures and agree how breaches are escalated. These terms cost the sponsor little when it intends to comply, and they reveal a great deal when it resists.

Clients and regulators are further audiences. Public-company audit clients, audit committees and lenders may ask how ownership change affects independence, quality and continuity. Prepare an accurate, plain statement before the announcement, and brief the heads of audit and quality control first. Firms that handle this well find that clients are mostly concerned with continuity of people and service, which the partners can credibly address if the deal terms protect them.

Bloomberg Law quotes TowerBrook's managing director on the logic: sponsors aim to create equity value by backing the best technology infrastructure, the best compliance infrastructure and the best track record. TowerBrook invested in what is now Eisner Advisory Group in 2021. The statement is a useful test. If equity value comes from technology, compliance and track record, then a sponsor's ability to deliver those things is the main determinant of what your retained equity will be worth.

Sponsors differ widely in what they deliver. Some bring shared services, centralised technology, pricing discipline and a repeatable acquisition and integration process. Others bring mainly capital and a financial model. Ask each bidder for specifics: which technology investments have been made at portfolio firms and what they cost; how integration is staffed; how partner retention has performed after deals; how the sponsor handles disagreements with the firm's leadership; and how many of its partners have sold a second time and on what terms.

Evidence should come from people, not presentations. Ask to speak to partners at two or three other portfolio firms, including at least one that has had difficult moments. Ask what the sponsor did when audit quality, staff turnover or client attrition worsened. Ask how much management time the sponsor's reporting requirements consume. A sponsor with a real playbook will welcome the scrutiny, because it differentiates it from competitors offering marginally higher prices with less behind them.

The matrix below sorts bidders by headline price and playbook strength. The best outcome is a strong playbook at a competitive price. A very high price with a weak playbook leaves partners to deliver the growth themselves while carrying more leverage. A modest price with a strong playbook may still beat it in value after five years. Partners should weigh the second and third positions carefully before treating the top bid as the winner, and should ask their advisers to model each scenario.

A short list of questions can sharpen sponsor interviews. How does the sponsor measure success for a portfolio firm beyond EBITDA? What does it do when audit quality and short-term profit conflict? How has it handled partner departures after closing? Which technology and training investments were made in the first year, and who paid? Written answers allow you to compare bidders consistently, and they become reference points if performance later diverges from the plan.

Firms that achieve the best outcomes prepare well before they speak to sponsors. Start by agreeing, as a partnership, what you are trying to achieve: liquidity for senior partners, capital for technology, a platform for acquisitions or protection against succession risk. Different aims point to different structures, and some point away from private equity entirely. A partnership that begins talks without a shared view of its aims will let the bidders define them.

Then prepare the evidence. Rebuild earnings on a normalised basis, analyse clients and revenue by service line, understand attrition by seniority and quantify technology spend. Assess the independence position and the regulatory consequences of each possible structure with specialist counsel. Prepare a view on how to communicate with staff and clients, since news of a sale reaches both quickly. This work is useful whichever route you choose, because it clarifies the value of the business to its own partners.

Run a controlled process. Engage appropriately licensed M&A advisers and counsel with experience on both sides of such transactions, approach a limited number of sponsors, and maintain an organised data room. Compare offers on a like-for-like basis, including after-tax proceeds, deferral, rollover terms, governance, liquidity rights and independence covenants. Build a negotiating mandate with the partnership in advance, including walk-away points, so that individual partners are not bargaining separately with the sponsor.

Finally, keep the alternatives alive. Internal succession plans, debt-funded partner buy-outs, mergers with peers or a minority investment can each meet part of the objective, and each strengthens your hand in negotiation. The strongest position is to approach sponsors as a firm with a plan, a defined price floor and other options, not as a firm that must sell. The table and steps below set out the terms to prioritise and the stages we would follow.

Cost and incentives of advisers deserve attention as well. Transaction advisers are often paid on completion, which can bias advice towards closing a deal rather than improving it. Ask for a fee structure that rewards price and terms, not only signature, and agree who speaks for the partnership. A clear mandate and a disciplined timetable keep the process from drifting, and they reduce the risk that a few partners negotiate side arrangements that weaken the collective position.

Karter McKinley's M&A & Corporate Development work supports partnerships in preparing the earnings base, running a structured sponsor process and setting out the terms in this paper, alongside appropriately licensed M&A advisers, legal counsel and independence specialists. This is information, not investment, legal or regulatory advice, and we make no promises about price or outcome.