In an era in which private equity activity among tax, audit & accounting firms has the industry buzzing, Pat Walsh, CEO of Withum, shares his insights on the industry and his firm’s choice to remain independent
As the tax, audit & accounting industry continues its evolution, one factor is unchanging: Firms desire for growth. What has changed since 2021 (and gaining traction and attention) is the alternative opportunities for funding such desired growth through private equity investment. This of course has raised the question of whether firms should pursue such investment or remain independent and find other sources of funding.
We sat down with Pat Walsh, CEO of tax advisory and audit firm Withum, to get his insights on these industry shifts and his firm’s stance going forward.
The rise of private equity
Private equity’s interest in accounting firms is not unprecedented. Private equity sees the industry as an attractive investment due to its steady profitability and high cash flow. Walsh recalls past attempts by American Express and HR Block to roll up independent accounting firms into larger conglomerates, which ultimately failed. However, today’s environment is different as firms are now more open to private equity because the liquidity it provides and the ability to grow rapidly through acquisitions.
Walsh acknowledges that while private equity can and will be successful for some firms, time will tell if it suits all.
Withum’s approach to independence
Withum’s philosophy is rooted in stewardship rather than ownership, Walsh says, adding that the firm sees itself as a custodian of its legacy, aiming to pass on a better firm to the next generation. This stewardship involves focusing on industry expertise and investing in people. Walsh likens Withum’s strategy to Warren Buffett’s buy-and-hold approach, prioritizing long-term benefits and control over short-term financial gains.
Walsh advises other firms to consider their firm philosophy and long-term goals. Are they stewards of their firm, or owners who can sell their interest to outside investors? Will being a larger firm make the firm better? He encourages firms to evaluate whether a combination with another firm provides opportunities for the next generation or simply capitalizes on market disruptions. For Withum, the focus is on building a better firm through organic growth and strategic acquisitions.
Withum’s philosophy is rooted in stewardship rather than ownership, and the firm sees itself as a custodian of its legacy, aiming to pass on a better firm to the next generation.
While M&A are part of Withum’s strategy, Walsh stresses that organic growth is the ultimate arbiter of success. Organic growth reflects a firm’s ability to provide opportunities for the next generation, invest in technology, and support its communities. Withum’s scale allows it to prioritize such organic growth, ensuring it remains relevant and competitive in the market.
Client relationships and private equity
Walsh notes that clients rarely inquire about firm ownership. Instead, they prioritize the quality of service and expertise provided by their client service team. Whether a firm is owned by its partners or by financial investors, what matters most is the firm’s ability to deliver exceptional service at a fair price. Walsh acknowledges potential concerns around independence for those clients that are registrants with the Securities and Exchange Commission but adds that he believes the American Institute of Certified Public Accountants (AICPA) is effectively managing these complexities.
The primary competition with private equity-backed firms lies in M&A. Indeed, private equity’s financial incentives can be appealing to firms seeking a larger platform, Walsh says, but Withum’s focus on culture and long-term vision resonates with firms that prioritize stewardship over short-term gains. As for go-to-market activities, Walsh explains that he sees little impact from private equity, emphasizing the importance of being a better firm through efficient management and profitability.
Walsh notes that there are other key issues that Withum had to address (as would any firm that’s considering growth strategies or private equity investment), including:
Impact on pricing — The profession has experienced turbulent times, with growth rates soaring during the pandemic. Walsh observes that the current correction is a return to traditional growth patterns, with clients pushing back on pricing. Inflation has decreased, making rate increases more challenging.
Attracting and retaining talent — To attract and retain talent, Withum strives to be the employer of choice. Walsh highlights initiatives like covering 25% of childcare costs for working parents, which demonstrates the firm’s commitment to its team members. Withum’s culture emphasizes relationships, development, and connectivity, fostering an environment in which employees feel valued and engaged.
The role of culture — Walsh notes that culture is paramount in both client and team interactions. Withum invests heavily in its culture, hosting events like the State of the Firm, in which all team members gather to celebrate achievements. Walsh asserts that this investment distinguishes Withum from other firms, reinforcing its commitment to people-first values.
Future trends & challenges
Looking ahead, Walsh identifies technology as a key driver of industry transformation. He dismisses fears of AI replacing accountants, likening it to past disruptions like blockchain and QuickBooks. Instead, technology will enable firms to right-size their service offerings and maintain high-quality service with fewer people. Walsh also highlights the importance of leveraging global resources to meet client demands.
In an era of private equity and industry shifts, Walsh’s insights offer a compelling perspective on the future of accounting. Withum’s commitment to stewardship, organic growth, and a people-first culture positions it well as it strives to build a better future for its clients and team members.
As the advisory, tax, audit & accounting profession continues to evolve, Walsh’s emphasis on relevance, relationships, and technology will continue to guide Withum’s path forward.
You can find out more about the talent challenges facing tax, audit & accounting firms here
