Keys to Venture Capital and Private Equity Groups Buying Accounting Firms

Seller: WHO is the ACCOUNTANT or CPA that will be DOING THE WORK?

If you are a venture capital or private equity group that is looking to acquire an accounting firm, here are some insights you need to know if this is your first acquisition in this industry.

1) In most of the firms we represent, the Seller(s) are doing billable work.

The seller is typically the “firms top tax expert” in many of the firms we represent. Sellers are looking for a firm/individual buyer that can replace them. Further, in most firms with less than $1-3M in revenue there is often not a management level person at the firm who is interested in being the “manager”.

If you don’t currently have a CPA/EA with relevant experience for the firm you are looking to acquire who will replace the seller where the firm is located, most sellers are not open to considering you as a buyer.

2) Sellers want to meet and get to know who will replace them.

The first question our sellers ask us when we approach them with a PE or VC buyer prospect is, “Who is the person that will replace me?”

All of our sellers want to meet and get to know the person/firm that is going to be interacting with their clients and staff. They want to make sure the buyer has the experience necessary to take care of the clients.

3) We don’t have that person now, so I’ll just promote someone from within to run the firm.

As mentioned above, most of the firms we represent do not have an existing employee that can be promoted to manager. Further, sellers are almost always open to helping transition the firm properly to the buyer, but they are not usually looking for long-term employment post-closing.

4) We don’t have that person today, but we’ll go out and hire an accountant or CPA to replace the owner/seller.

Sellers want and most of the time will require that they meet the person who will be taking over for them. Hiring that person post-closing does not usually work for most of our sellers.

5) Don’t worry, we plan on running the firm remotely or converting it to a virtual firm.

Only about 5% of the firms we represent can be run remotely or virtually. This is often proposed by buyers of all kinds, but in reality it won’t work most of the time.

6) How to stand out so our Sellers know you’re serious about them.

Given all of the above, I want you to know that we receive MANY calls each WEEK from PE or VC groups where they tell us that they’re interested in buying firms. Their value proposition is they’ll bring in a better technology stack, sales, marketing, digital, social and increased automation to improve the profitability, efficiency, revenues and so on. This all sounds good on paper but the challenge we have to overcome is, if you are not the actual accountant, EA or CPA who will be ‘doing the work’ and ‘billing hours’ then we, as the broker, need to:

a) know who the person is that will replace the owner, and

b) talk to them before we can go to our sellers to request an introductory call or meeting for you.

If you have any questions or comments about this article you’re always free to call or text me, Jeff Bell at 317-674-3335. Or for a true accountant’s perspective on this from someone who has already bought and sold his own firm and is one of our brokers, call or text Joshua Dennis, CPA at 812-202-7155.