Accounting firms have been fielding offers from a growing number of private equity investors over the past five years as PE money continues to pour into the accounting sector, fueling a wave of M&A activity.
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Some firms are trying to steer a middle course, like Sax, a Top 75 Firm based in Parsippany, New Jersey, which split into Sax Advisory Group and Sax LLP, after receiving a
“Cobepa gave us the ability to continue to remain an independent firm with a minority investor and allow us to run the firm the way we always have, but just accelerate the growth pattern of the practice and try to compete with these larger firms.” said Sax CEO Joseph Damiano, saying the additional capital has fueled its investments in AI, talent and continued M&A. “We’ve had a substantial amount of growth since we transacted back in July.”
His biggest fear was that nothing was going to change after taking on a minority investor and that he wouldn’t see any deals flow. Instead the opposite has happened.
“We just couldn’t be competitive in the new way of deals that were being done in the mergers and acquisitions front,” said Damiano. “I couldn’t be more happy that we’ve accelerated that piece now. We’ve gotten six deals under our belt since we’ve transacted on the CPA side, and we probably have just as many, maybe more on the wealth management side of our practice in acquisitions.”
“Quite frankly, Cobepa has been as advertised,” he continued. “They’ve allowed us to run the business. They’ve allowed us to still feel like an independent firm and really haven’t made us change many things.”
Staying independent
However, many firm leaders remain unconvinced and have resisted the lure of private equity so far. Mowery & Schoenfeld, a firm based in Lincolnshire, Illinois near Chicago, is marking 30 years of growth without any help from private equity. The firm has gone from three employees in 1996 to more than 200 and is earning over $48 million in revenue today while maintaining full independence.
“We have a lot going for us in terms of our succession plan and our ability to execute, so I don’t think that the private equity would work for us just for that reason,” said founder and managing partner Jeff Mowery. “We are very attractive to private equity. We’re being contacted almost daily, and the reason that they want us so badly is that we can remain independent because we have a strong bench.”
“We have a kind of a north star of what we want to do and what we want to be working toward, and we have a plan that’s going to get us there,” Mowery continued. “I don’t see the benefit for us to talk to a larger firm because we’re going to be a larger firm.”
He pointed out that the firm has younger partners in their thirties — and six more soon-to-be partners — who will be able to carry the firm into the future without the need for PE investment.
“Those people have relied on our promise to remain independent and have bought into that strategy,” said Mowery. “I personally cannot imagine a situation where I would face them and say we need to do this.”
Mowery plans to retire and leave the firm to his successors saying “our best investment is in ourselves.”
“I’m toward the tail end of my career,” said Mowery. “The firm is like family to me, and I wouldn’t want to disappoint them to limit what they can do with the firm because there will be limits on the upside if we went with private equity and their opportunities for greatness. A guy would just ride off into the sunset, but I can’t do that to the people that I work with and I care about.”
On the other hand, he doesn’t fault other firms for taking on PE investment.
“It depends on their situation,” said Mowery. “I don’t know if they’re making mistakes or not. … However, I do feel that the people who are the up-and-comers in the firm are disadvantaged in that situation because a lot of the straight-off-the-top from private equity will go to more senior partners, and the people who are needed to make the firm to execute the firm, are going to become disillusioned and unhappy.”
Mowery sees PE firms as overly focused on maximizing their EBITDA. He has heard from many potential job candidates who want to leave firms that have accepted PE investment, citing the change in culture, change in operations and the limiting of opportunities.
Investing in tech
One of the many firms that has accepted PE investment is Wipfli, which
Wipfli is investing in priorities such as client accounting services, cybersecurity and technology management services, artificial intelligence and automation advisory services.
“Those lower middle-market clients are facing some of the same things we’re facing: the workforce pressure, cybersecurity, inflation, and the list goes on,” said Wipfli CEO Kurt Gresens. “Our clients in the middle market can’t always afford to build the expertise and the specialized teams that they need to deliver on all the complexity and to manage all that complexity. They can’t do it themselves, so they’re choosing Wipfli — to rely on us — to have the expertise to deliver what they need for them in their complexity.”
Clients are feeling the same pressures as firms to know where to invest or get investment.
“It’s more than just accounting, it’s more than just tax, it’s about technology, it’s about AI, it’s about cyber, it’s about operations, and more,” said Gresens. “We’re building the firm here with the realities of the talent here to be that better outcome, force-multiplier effect for our clients, and ensuring that we’re delivering services and offerings to our clients that will help them make decisions, improve operations, manage risk, adopt new technologies, AI and more. That’s where we are from a mindset perspective. We know we have this great opportunity to really be an extension of management teams out there in our clients’ universe.”
Tradeoffs with growth
Sax, which also has a PE minority investor, has also been using its funding to build its technology capability and to help its clients effectively leverage AI.
“We’re leaning into our Sax Technology division that we created probably 24 months or 36 months ago, and they have been doing some really special things with AI within our practice,” said Damiano. “They’re automating things within our practice more regularly now. We’re actually in the process of revamping operationally how we take a tax return from start to finish and try to figure out how many more things we can automate within that process. Between our Sax Tech and our use of technology and commitment to continue to spend money on the technologies, we’re at the forefront of trying to incorporate AI into the practice as much as we can at a firm our size, and quite frankly, the resources that we could spend at a firm our size.”
Damiano plans for Sax to continue to expand as it grows at a clip of about 12.5% thanks to the recent PE investment. Sax’s wealth management practice has grown over 20% this past year to over $6 billion in assets under management. Damiano predicts the firm will have a run rate in revenue north of $180 million this year, compared to $109 million in 2024 and $138 million in 2025.
The passage of the One Big Beautiful Bill Act last year has helped fuel business at firms like Wipfli to advise their clients about new tax regulations. “We’re definitely having the firm built to ensure that we’re well connected into the changes and regulations that may be coming down the pike,” said Gresens. “We’re making sure we’re well positioned with our clients to ensure they’re aware of the potential changes or enacted changes that are ultimately coming to their industry as well.”
But firms have to be cautious about how fast they grow, especially if they’re making acquisitions, with or without PE funding. “Our topline growth is good, very solid organically,” said Mowery. “Opportunities do come along, and we did an acquisition in 2024. If they have some specialty or enhance something we already do, that’s one thing, but just to add into this topline and build a higher topline, we don’t really need that. We have enough growth as it is. We’ve done six acquisitions, and those are not easy. There are a lot of cultural dynamics, getting everyone aligned, and over time with practice, we’ve gotten pretty decent at it. However, if you’re doing multiple acquisitions in a year, it’s very difficult to manage in terms of the transition of the leadership of the firm into maybe not a leadership oversight role exact. Getting aligned into the way that our firm does things, which is mandatory, they have to adapt the way we execute work and our systems. Having the people to execute these things and properly transition the clients, especially if the founder or owner is exiting at some point in the future, we have to bring those clients into the firm. We’ve done some that are extremely successful, and we’ve learned along the way. The last two we’ve done have been extremely successful, so we learned a lot from the first ones. You have to have certain practices and things you do to make it work, but these aren’t that easy because there’s a lot of relationships that exist between a CPA firm and clients, and they’ve got to be modified, and that’s not always easy in a transition.”
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