Adrian JohnsonTLDR:
– Private equity firms have a significant amount of cash to spend on new deals.
– The Baker Tilly deal, in which PE firms Hellman & Friedman and Valeas Capital Partners acquired a majority stake, could signal a shift in PE investment in the accounting sector.
The private equity industry is faced with the challenge of how to invest an estimated $2.6tn of investors’ cash. One possible answer to this question came in the form of the Baker Tilly deal, where US accounting firm Baker Tilly sold a majority stake to private equity firms Hellman & Friedman and Valeas Capital Partners. This deal, valued at around $1bn, represents the largest private equity deal in the accounting sector to date.
Some industry insiders believe that this deal could represent a step change in private equity’s appetite for investing in accounting firms and professional services more broadly. Historically, private equity has shown little interest in the accounting sector, and instead has focused on industries such as technology and healthcare. However, the Baker Tilly deal suggests a shift in this trend, as private equity firms recognize the potential for growth and profitability in the accounting sector.
This shift can be attributed to a number of factors. First, the accounting sector is experiencing significant disruption due to advancements in technology and changes in regulations. This disruption presents opportunities for private equity firms to invest in and transform accounting firms, leveraging technology to streamline processes and improve efficiency.
In addition, the accounting sector is highly fragmented, with many small and mid-sized firms competing for market share. Private equity firms see an opportunity to consolidate these smaller firms and create larger, more integrated platforms that can provide a wider range of services to clients. This consolidation trend has been seen in other industries, such as healthcare and technology, where private equity firms have successfully acquired and integrated smaller firms to create larger, more profitable companies.
Furthermore, the Baker Tilly deal could serve as a catalyst for further private equity investment in the accounting sector. The success of this deal could inspire other private equity firms to pursue similar opportunities, leading to increased competition and activity in the market. This could potentially drive up valuations for accounting firms and create new opportunities for sellers.
Overall, the Baker Tilly deal represents a significant development in the private equity industry’s appetite for investing in accounting firms. While it remains to be seen whether this trend will continue, it is clear that private equity firms are starting to recognize the potential for growth and profitability in the accounting sector, and are actively pursuing opportunities to invest and transform these firms.
