Private equity is gobbling up accounting firms. But not this Atlanta firm.
At a retreat at the Barnsley Resort in the foothills of the North Georgia mountains a year ago, the partners of Atlanta-based accounting firm Moore Colson had an important decision to make.
Private equity firms had been calling every week, pitching deals to invest in the firm and provide funding that could be used for expansion, investment in artificial intelligence or other priorities.
Accounting firms might not be the first businesses that come to mind as a target for private equity, but investors have been buying up competing firms for the past few years, and that can drive increased competitive pressure — along with the lure of a lucrative deal.
“Everyone can see it,” said Andy Starnes, managing partner at Moore Colson, which has about 200 employees. “It’s happening in the marketplace.”
But at the partner retreat last November, “We had a specific discussion point … and said, as a leadership team, we don’t have any interest in pursuing this.”
“‘Does anybody feel differently? Do we need to explore this?’” Starnes said the discussion went. “We didn’t have anyone that wanted to do that. So everyone was aligned there that we want to stay independent. … It was unanimous.”
That was a line in the sand as private equity firms target fragmented industries like accounting, along with other industries including health care, tech, manufacturing and building contractors.
“They’ve gone through a phase where they’ve rolled up car washes” and veterinarian practices, said Moore Colson partner Chris Fagan. “Right now, they’re rolling up roofing companies and HVAC companies because you have a highly fragmented market of unsophisticated sellers.”
Why is private equity targeting accounting firms?
Private equity likes to acquire firms with debt, merge some of them together, find efficiencies, expand and then sell the company or go public on the stock market — in hopes of making a profit for investors.
There are more than 46,000 accounting firms across the U.S., and most are fielding outreach from private equity firms at least once a week, according to Jason Kadow, director of corporate development at Sorren, which is a collection of accounting firms that merged together this year under New York-based private equity firm DFW Capital Partners. Kadow’s comments were in a September article from accounting firm Wolters Kluwer on how private equity is reshaping the accounting industry.
Accounting firms are attractive to investors because they have a steady stream of cash flow, Fagan said. There will always be a need for companies to file taxes and to go through required audits. Private equity firms also often hope to expand consulting services offered by accounting firms, to bring in more high-dollar projects in mergers and acquisitions, for example.
The influx of private equity is “fundamentally reshaping the accounting industry,” according to independent accounting association AGN International in an article this year. It said there are likely 20 to 50 active private equity-funded consolidators in the U.S. market.
To remain competitive, no matter which direction they take, accounting firms must focus on growth, according to AGN.
Moore Colson, for its part, said it has grown revenue by 41% over the last five years, reaching nearly $50 million last year. It’s one of the 20 largest accounting firms in Atlanta, serving clients around the Southeast.
“Private equity represents neither a demolisher nor a panacea for accounting firms. But it undoubtedly represents a significant structural and competitive shift in the industry,” AGN said.
Atlanta’s accounting industry landscape
Moore Colson, with offices on Galleria Parkway in Cobb County, is one of dozens of large Atlanta-area accounting firms, Starnes said. And the Atlanta area has a disproportionately large share of the top 200 accounting firms in the country — some of which have already taken private equity, he said.
One of the largest Atlanta accounting firms, Aprio, last year announced it received investment from private equity firm Charlesbank Capital Partners with an eye to accelerate growth and “invest in talent, technology and corporate infrastructure,” for example.
This year, Atlanta accounting firm Frazier & Deeter announced investment by investment firms General Atlantic, PSP Capital Partners and Aksia to “accelerate its multi-year strategic plan.”
A number of Georgia’s longtime accounting firms trace their roots back to 1981, including Frazier & Deeter and Moore Colson, which were founded that year as baby boomer accountants early in their careers sought to start their own firms.
Not every major Atlanta accounting firm has gone down the private equity route. Bennett Thrasher, founded in 1980, has also this year expressed its interest in remaining independent.
But at some firms, founders who are now reaching retirement may not have a definitive succession plan. Private equity investment is an alternative to buy out retiring partners and bring in new leadership, according to Starnes.
Moore Colson’s path less traveled
But Starnes, who took the helm of the firm three years ago, said Moore Colson has been “very intentional about succession planning.”
And he said Moore Colson has long had a different strategy from other accounting firms.
“People who are focused on acquisitions or have gotten capital investment — they’ve got sometimes different priorities. They’ve got different interested parties that they’ve got to answer to. And so the client service slips,” Starnes said.
That’s a Moore Colson priority he doesn’t want to compromise on.
“We’re in a pretty unprecedented time and level of (merger and acquisition) work in the accounting world, and it’s just not somewhere where we want to get distracted,” Starnes said. “We’d rather focus on doing good work for clients.”
The firm traces its beginnings to founders Greg Colson and Jack Moore, who started the firm about 44 years ago.
“Greg Colson was an accountant, but Greg was also very entrepreneurial,” Starnes said. “He was great with clients, and that was his gift, and he really infused that culturally of: Be good business people, do good advisory work for clients. … Everything else will shake itself out.”
While at other firms each accountant has their own clients they manage, at Moore Colson, each client belongs to the entire firm. That, according to Starnes, means thinking about “what’s better for your client or for Moore Colson as a whole, and not just you personally.”
That means if a Moore Colson professional gets a referral to a construction firm in need of an accounting firm, but isn’t an expert in the construction industry, they would refer the client to those who are within the firm. “You’re going to be compensated on how the firm performs,” Fagan said.
Fagan believes having the firm run essentially by owner-operators, without involvement of private equity investors, also means “we are far more nimble.”
“We’re not having to run it up the ladder and be sure there’s no conflicts with another business in a different industry,” he said.
Private equity can dilute ownership, meaning partners who are part owners of the firm may see their ownership share reduced or eventually eliminated. That may be less attractive to people in the firm who are on the partner track, Starnes said.
And clients who are business owners feel better understood by accountants who are also part owners of their firm, according to Fagan. “Business owners like to talk to other business owners,” he said.
“Whether it’s fair or not, being a business owner is like a country club,” Fagan said. It could end up with private equity: “You take that money and you’re no longer a business owner.”
About the Author
As business team lead, Kelly Yamanouchi edits and writes business stories. She graduated from Harvard and has a master's degree from Northwestern.
