A quick pivot is required to compete as an independent firm in an increasingly private equity-aided environment for tax, audit & accounting firms
Amid a dizzying flurry of mega-mergers and private equity acquisitions among tax, audit & accounting firms over the last few years, a growing number of firm leaders are publicly proclaiming their intention to decline any private equity capital infusion or purchase by a larger firm.
Managing Partner Tom Barry, for one, says maintaining the flexible, family-first culture at Los Angeles-based GHJ is just one reason to declare independence. “I think we all know that if we didn’t remain independent, we’d lose control of that,” Barry says. “That culture is going to be done on Day One, no matter what anyone tells you.”
Of course, that doesn’t mean it didn’t take some soul-searching to make the decision.
“We have people knocking on our door every day for acquisitions and private equity,” Barry explains. “You can’t just be blind to it. You still have to understand it and know what it is. I have a custodial responsibility to understand what the best options for the firm are. We sat down last year and went through financial modeling, what we have to do [to remain independent], what are ‘nice-to-haves,’ what are non-negotiables.”
The non-negotiable was that the younger partners had to be all in on staying independent, Barry says. “To the very last one, they all stood up and said, ‘We’re in.’”
Change or lag behind
The entrance of private equity into the profession, starting with EisnerAmper’s deal with TowerBrook Capital Partners in 2021, has accelerated the need for rapid change within the industry. Private equity has flooded the profession with capital for firms to pay retiring partners, acquire smaller firms, improve technology, and expand client services.
Simply put, firms have three choices in this environment: Merge with another firm, take a private equity investment, or remain independent and keep doing the hard work required to compete. Operating as usual or ignoring these pressures is not an option.
The entrance of private equity into the profession… has accelerated the need for rapid change within the industry.
“If you’re not going to change, you’re going to end up falling behind at this point,” said David Toth, chief growth officer of Winding River Consulting, which is advising tax, audit & accounting firms on making the decision to stay independent and then helping them make the needed changes, a job that can take two to four years.
Whether the firm has the cash and energy to remain independent is the key question that firms are facing.
For example, GHJ Advisors — a 250-person, Top 100 firm — refusing the money and resources of a larger organization requires embracing tradition yet turning away from it. Barry acknowledges that maintaining the firm’s culture and honoring the legacy of the 72-year-old firm’s founders may be “romanticized” reasons for independence, but practical responses have included a less generous distribution of profits to the partners for reinvestment, and a complete turnover in senior leadership over the last eight years.
Leaders of CliftonLarsonAllen (CLA), a Top 10, $2 billion firm, concluded that the firm can remain independent in large part because of its low debt and its ability to sink resources into technology and talent, says Scott Engelbrecht, CLA’s chief development officer.
The firm wanted financial and operational autonomy, and with 15% capitalization, it’s in year two of a five-year plan to spend $500 million on technological advancements. Without worrying about quick, monetary returns favored by private equity, the firm can look at the long-term value of spending on staff and clients, Engelbrecht explains.
CLA also invested in technology and talent long before the surge of outside capital began reshaping the profession, he notes, adding that during the pandemic, for example, when other firms hesitated, CLA moved ahead with three firm acquisitions totaling $160 million.
Further, while many private equity-funded firms are led by a CEO, CLA believes the traditional partnership model works for them to ensure decisions are made at the local level. “Don’t let deal mania get in the way of remembering what got you where you are today and don’t be afraid to invest in yourself,” Engelbrecht says.
Of course, not every private equity transaction will succeed, but that means that strategic independent-minded firms have an opportunity to gain clients and talented professionals in the fallout of someone else’s bad deal.
Both CLA and GHJ are growing through a combination of internal business development and acquisitions of smaller firms — and both are sticking with their specialties as well. “We’re not enamored with shiny new objects,” Engelbrecht adds.
Putting all the elements in place
Thriving independent firms have three things in common, says Winding River’s Toth, these include:
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- Strong leadership — Rather than partners running all elements of the firm themselves, firms seeking to keep their independence may need to convert to a more corporate form of governance, Toth advises. The key is ensuring leaders, whether managing partners or CEOs, can execute their strategy. Firms also should have a deep bench of emerging leaders and a commitment to talent development.
- Integrated technology — “Everybody keeps saying we need private equity to help us invest in technology, but is that really true? I think there are other levers you can pull if it’s just a technology pain point that you’re trying to address,” Toth says.
- Excellent execution — Independent firms must make decisions in an agile, nimble, and responsive way. “Strategy is easy,” Toth adds. “It’s execution that’s hard.”
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GHJ and CLA aside, Toth says he has observed that some “fiercely independent” firms charge their minds, perhaps because of fear, lack of succession, need for capital reinvestment, or even FOMO (fear of missing out) or “opportunistic greed.” It’s hard to resist a big private equity check right up front, especially because the valuations that many firms are getting now may not be there in three to five years, he explains. “That really can change the tone of a conversation.”
Of course, not every private equity transaction will succeed, but that means that strategic independent-minded firms have an opportunity to gain clients and talented professionals in the fallout of someone else’s bad deal. Independent firms may also benefit from gaining clients who don’t like the service or fees of the larger, national firms, Toth says, adding that he also started seeing a surge of entrepreneurial startups.
Toth says he believes many tax, audit & accounting firms should address the fundamental question of Why? — as in why the firm wants to remain independent — then create a solid business plan to do so.
“I think you have to focus on building a great business,” Toth advises. “And no matter what you ultimately decide during that journey, if you’re building a great business, you’re in control of that destiny.”
You can download a copy of the Thomson Reuters Institute’s 2025 State of Tax Professionals Report here
