The accounting industry is being shaken up as private equity (PE) firms increasingly set their sights on acquiring stakes in and consolidating accounting firms. This trend has created a seller’s market reminiscent of a hot housing market, with many accounting firms reportedly considering capitalizing on the opportunity—but I believe some may be doing so without fully considering the long-term implications. While a lucrative exit is undeniably alluring, there’s a growing concern that some firms are merely following the herd rather than seeking strategic partnerships that align with their business goals and values.

As this wave of consolidation sweeps through the industry, it has become even more crucial for accounting firms to exercise caution and discernment. Before leaping into an acquisition, firms must carefully evaluate potential buyers, prioritizing those with a compelling long-term vision, a compatible culture, leadership with industry expertise, and a demonstrated commitment to being a people-centric firm. Instead of only asking, “What happens at the turn?” perhaps consider asking, “What is the plan for the next 20 years?”

What Does PE Want?

To understand the potential ramifications of PE investment, it’s crucial to first understand why PE firms invest in certain industries. Accounting is not known for being an industry that moves fast and breaks things but rather as one that is set in its ways and slower to change and adapt. PE investors often target sectors that are on the precipice of disruption but need a little push. This is typically characterized by rapid expansion, substantial organizational restructuring and an unwavering emphasis on financial returns. But not all PE models are the same—so you must get to know your potential new partners.

What To Consider In Potential Partnerships

To determine if partnering with PE is right for your organization, here are some questions you can ask to assess the compatibility of a potential PE partner.

First and foremost, let’s focus on strategy:

1. How does our firm fit into your investment strategy? There is no one-size-fits-all strategy, so if a potential PE partner wants to plug you into a plan that is clearly not compatible with your firm, pump the brakes and look elsewhere.

2. If we partner, what are short- and long-term goals for our firm? Knowing the PE firm’s short-term goals and understanding how those play into their overarching long-term goals can help you understand the impact of the partnership for your organization.

3. What happens after the initial investment period? Find out if the PE firm is prioritizing short-term gains over long-term sustainability. Is value derived through aggregation? Is it instant and complete integration?

4. Do you have examples of the value your firm has provided for other, similar partnerships? You want some idea of what could potentially happen to your firm based on previous partnerships. Knowing that can help determine if the partnership is a good fit. In particular, look for strong bona fides around people and culture.

5. What benefits are available to newer partners versus tenured partners? How will proceeds allocation be treated? What investments does the firm make in professional development and career development opportunities? It’s critical to know that.

Your accounting firm’s people are the lifeblood of your organization—accounting is a people industry. It’s important to ensure that your people are going to be taken care of in both the short- and long-term. There are several more questions you can pose to get a better idea of a PE firm’s people plan:

1. How will you prioritize maintaining and integrating our firm’s culture with other acquired businesses? In an industry like accounting, culture is key to keeping both employees and customers happy. You’ll want to verify that the PE firm has an actionable plan to keep your culture at the forefront.

2. What impact will our current employees see on their roles? Keeping people in the loop during a major transformation is change management 101. Prioritize communication about differences in roles and responsibilities so you can keep everyone informed and on track.

3. What employee retention and incentive programs will be put in place? Happy people stay where they are—it’s just that simple. Will equity be available to levels below partner? Making equity available to levels below partner is helpful for retaining high-potential employees and to developing an ownership mentality throughout the four walls of your firm.

Consolidation via PE isn’t for everyone, but when you ask the right questions, you can more easily sail the shifting tides of the industry. When the PE firm you choose can offer a mutually beneficial partnership that keeps culture and people prioritized for both the short- and long-term, you can stand out from the crowd with your PE partner, future-proofing your business while driving sustainable growth and success.