As private equity continues its incursion into the accounting profession – with dozens of PE-backed deals in the last few years making headlines – firms are being forced to ask a fundamental question: How will we fund our future?

Many leaders want their firms to remain independent, but managing partners have a fiduciary responsibility to clients, staff, and next-generation leaders to explore every available capital strategy – and to do so with a clear vision.

A Rapidly Shifting Capital Landscape

Private equity firms are pouring billions into professional services. PE-backed mega-firms, such as EisnerAmper, Cherry Bekaert, and Citrin Cooperman, are acquiring firms at a rapid clip, allowing for geographic expansion, additional services, and much-needed capital for technology investments, hiring, and more.

Before PE, firm leaders had the luxury of time to weigh their options, gain buy-in from partners, and ensure alignment. Merger deals would take months of dinners and talks. Now, financial terms are thrown around very quickly.

Private equity firms are impatient. If they’re interested, a quick call on Thursday can result in an indication of interest (IOI) by Monday, and a letter of intent (LOI) following shortly afterward.

While efficient decision-making is critical, firms can also move too quickly. Signing an LOI cuts the exploration short as it means an exclusive relationship with one PE firm. If the match falls apart a few months down the road, time is wasted.

Don’t Watch and Wait on Capital Strategy

In this environment, it’s irresponsible to avoid the conversation about capital, and it’s essential that it begin by revisiting the firm’s vision and goals. Do you plan to expand your footprint? Acquire talent? Invest in AI, automation, or client experience?

Then, consider each capital path objectively:

  • Partner Reinvestment – While it may be the best option to maintain control, how much capital is realistically available? Major reinvestment from existing partners may not be feasible, especially as younger partners carry higher debt loads. At the same time, if capital requirements are set too low, the firm may not be able to meet its goals.
  • Bank Debt – Usually, the relationship is a long and fruitful one, which is a plus, but taking on debt has its downsides, primarily personal guarantees from partners and limited working capital. Rising interest rates also make the option less attractive.
  • Private Equity – PE brings scale and deep pockets, but the opportunities come with strings attached, in governance changes, pressure for quick ROI, and cultural differences.
  • Upstream Merger – The upside is larger firms “get it” because culturally, they’re one of us. An upward merger, however, can mean surrendering local autonomy while bringing more bureaucracy and less flexibility into firm operations.

Objectivity Matters

Make sure to use the same pro-and-con discovery process for each option. As a leader, you need to remain objective – a difficult task as exploring options for the firm’s future is a high-stakes exercise. After all, legacy, payouts, and control are on the line.

Your job is to pick the option that aligns the firm’s vision with capital that supports the sustainability of the firm.

As a former partner at a Top 20 firm and an experienced intermediary, I’ve helped dozens of firms navigate this challenge. A third party can pair impartiality with a deliberate, contemplative process that can govern the pace of the project. For example, taking all the introductory calls before going to the partners can eliminate the possibility of falling in love with one offer and forging ahead.

Leaning toward PE? Committed to staying independent? Not sure? Coming to a conclusion does not have to be a drawn-out, time-consuming project. My role is to ask the right questions, uncover blind spots, and ensure leaders make strategic decisions that fit with the firm’s long-term goals. Together, we can bring clarity to your next step.