Private equity has big plans for small firms

About a year ago at AICPA & CIMA ENGAGE, small firm owner Amber Goering, CPA, CGMA, teamed up with David Wurtzbacher, the founder and CEO of a private-equity-backed strategic partner for regional firms, to lead a panel discussion titled, “Small Firm Succession — Are You Ready for the Next Wave of M&A?”

Soon after, and to her surprise, Goering realized she was ready.

“I had never even thought about private equity being interested in our firm or me being interested in it,” Goering said at this year’s ENGAGE. “We’re very excited to be part of this. This revitalizes my energy for my profession.”

Wurtzbacher and Ascend, backed by private-equity firm Alpine Investors, struck a deal with Goering & Granatino, P.A., less than four months after the 2023 conference, buying into the nonattest side of the Kansas-based firm and naming that side of the business GG Advisors LLC.

In the past, new names were just the tip of the iceberg when it came to the concerns that firms had when considering deals with private equity. But Goering’s firm has maintained its identity, keeping the culture and spirit of independence that Goering and her partner began building a decade ago while also benefiting from tools for growth and success that Ascend provides that are beyond the means of a 40-person firm.

“This profession is about trust in relationships, and that is not the default lens of private equity at large,” Wurtzbacher said. “You’ve got to make sure that you’re aligned with a strategic capital provider that sees client relationships in the same light that you do.”

Ascend, which has announced investments in 15 firms since launching in January 2023, is among a growing list of companies interested in investing in accounting firms and is a leader in changing past resistance to such arrangments.

Goering and Wurtzbacher joined Gary Thomson, CPA, managing partner at Thomson Consulting, for an ENGAGE panel discussion, “The Journey to M&A: How Private Equity Is Impacting the Profession,” earlier this month.

Five of the top 25 public accounting firms in the United States have struck deals with private equity over the past two-plus years, but the trend isn’t limited to large firms.

Thomson said he’s busier than ever helping clients of all sizes assess whether private equity is right for them.

“Frequently, the phone calls that I’ll get are inquiries from firms that start with, ‘How should we explore?’ We can jump into a ‘how to explore’ conversation, but really what I want to work firms through is a conversation that says, ‘Tell me where you want to be in the next three to five years?'” Thomson said. “At the end of that conversation, if they say these are the resources we need, then we ask the question: ‘From where do we get those resources?’ “

For Goering, the answer was Ascend, a company, Wurtzbacher said, that was built around a people-first model that previously served him well as president and CFO of Lightwave Dental.

“The reason that private equity got such a bad rap in dentistry was because they put short-term profit maximization over people. In the long run, that doesn’t work,” Wurtzbacher said. “The innovation of Lightwave Dental was to think of the dentist as the customer and build a business for dentists that would make them happy and empower them and allow them to stay somewhere for a long time.”

Wurtzbacher said he was drawn to public accounting firms in part because they provide an essential service but often are held back from reaching their potential by a lack of resources for meeting the demand.

“I was looking for an industry where it was clear that the business owners in it had a common set of problems that I thought I could help solve,” he said. “So I just started talking to partners and managing partners and staff and clients, and I got a really good cross-section of what was going on in the profession. It’s quite a cocktail of issues.”

The main ingredient in that cocktail — in Wurtzbacher’s estimation — is talent acquisition and retention.

“They believe if their people are happy, they’re going to make money, and we like happy people and we like money,” Goering said. “I have been privileged enough to hire, I think, 11 or 12 people now since October with Ascend’s help. We have an internal recruiting team, so that’s extremely valuable.

“What I’m learning is that we as an Ascend firm are wanting to revitalize the profession. We are wanting to change it, so our young talent wants to stay. We want to be very forward with them on how they can achieve their goals and then work with them individually on their goals. What do they want? How can we make that happen?”

Goering said she’s thrilled with how Ascend has worked with the firm to maintain — and even improve — its culture. Wurtzbacher encourages firms concerned about losing their culture to ask potential investors for a list of firms they’re invested in, then randomly pick from the list and ask about those firms’ experiences.

Thomson said he understands firm cynicism about private equity and encourages due diligence. He aims to remain “agnostic” while helping clients gather knowledge that ultimately will help them make informed decisions — but he also thinks that knowledge is powerful regardless of the ultimate decision.

“I believe that private equity is going to create some incredible independent firms because we’ve now peeked behind the curtains and see what it requires to be better at what we do,” Thomson said. “Some look at it and say, ‘We’re not ready for it. We haven’t created the value, but we also have created some excitement by looking at this. Let’s go get better, not because we may eventually sell, but because we can eventually control our destiny.’ “

For Goering, the right fit came along when she wasn’t even looking.

“It’s making us truly look at how a CPA firm should be run as a business, in maybe a way that we haven’t thought of before,” she said. “I think it will continue to make us better and, most importantly, secure higher future valuations of the businesses that we’ve worked so hard to create.”

Editor’s note: Those who purchased an all-access pass to AICPA & CIMA ENGAGE 2024 can view this and other archived sessions and a new lineup of live ENGAGE+ sessions on July 17, Sept. 18, and Nov. 14 for additional CPE. If you didn’t ENGAGE, you still can access this session.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.