Ready or not: Private equity is here

Is private equity (PE) right for you? Even if you’re not considering a PE deal, you must understand the dynamics to stay competitive in Virginia’s evolving marketplace.

By Phil Whitman, CPA

Private equity (PE) is reshaping the accounting landscape at a pace and scale never seen before. As someone who’s advised on more than 30 PE-backed CPA firm transactions in recent years, I can say with confidence: This is not a passing trend. It’s the new normal for firms of all sizes — including those right here in Virginia.

This article breaks down what every Virginia CPA firm partner and leader needs to know about private equity, from how deals are structured to what makes a firm attractive to investors. Whether you’re considering a PE partnership or simply want to stay competitive, understanding these changes is essential.

The new players in accounting firm ownership

Private equity firms are no longer the only buyers in town. Today’s M&A landscape includes:

• Family offices: These investors often seek longer-term holds (10+ years) and may have less aggressive growth targets.
• Pension funds and wealth managers: Typically, these groups look for firms with stable, predictable cash flows.
• Short-term vs. long-term holders: Some PE firms aim to sell their investment in 3–5 years, while others (including some family offices) may hold indefinitely.

Understanding who is at the table — and their motivations — can help you negotiate better and align your firm’s future with the right partner.

Deal structures: Majority vs. minority ownership

Most PE deals in the accounting space involve some form of shared ownership:

• 60/40 splits are common: The PE firm purchases 60% of the business, while existing partners retain 40% as “rollover equity” (reinvested into the new entity).
• Local vs. TopCo rollover: Where your 40% sits matters. If it’s in your local firm, you may retain more control over your destiny. If it’s at the holding company (TopCo) level, your returns are tied to the performance of the entire group.

Before signing, make sure you understand where your equity is and how it’s valued.

Valuation: It’s about EBITDA, not revenue

PE investors focus on Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), not just top-line revenue. Common adjustments include:

• Owner compensation normalization
• Removal of non-recurring expenses

This approach means two firms with similar revenues could have very different valuations, depending on their profitability and expense structures.

Multiples: What’s your firm really worth?

The formula most PE buyers use:

Adjusted EBITDA × Multiple = Total Enterprise Value (TEV).  For example, a firm with $8 million in revenue and $2 million in EBITDA might command a multiple of 5x, resulting in a $10 million TEV.

Recently, firms that once fetched 3.5x–5x EBITDA now see offers in the 4.5x–8x range, depending on niche, size and geography.

Payment terms: Highest multiple isn’t always best

It’s easy to focus on the headline multiple, but payment structure matters just as much:

• Upfront cash: Typically, 50% is paid at closing, with the remainder paid over five years.
• Working capital requirements: Some deals require firms to leave three months’ cash in the business; others require more or less.
• EBITDA calculations: The way EBITDA is calculated can have a bigger impact on your payout than the multiple itself.

The bottom line: Don’t just chase the highest multiple — look at the full terms.

Who should consider private equity?

PE isn’t a fit for every firm, but every firm should be informed. Ideal candidates often have:

• EBITDA ≥ 15% of revenue after partner compensation adjustments: Firms below this threshold may struggle to attract serious interest.
• Growth-ready platforms: PE investors are looking for firms with a proven track record of organic and M&A-driven growth.
• Leadership teams facing succession challenges: PE can bring professional talent acquisition resources and help engage younger partners in succession planning.

If your firm is not in this category, PE may still impact your competitive landscape.

Why education is essential for Virginia CPAs

PE-backed firms are now your competitors. They have the resources to:

• Outspend on talent: Offering salaries 20–30% above market rates.
• Leverage capital: Funding acquisitions and technology investments.
• Move quickly: Making decisions faster than traditional partner-led models.

Even if you’re not considering a PE deal, understanding these dynamics is crucial to staying competitive in Virginia’s evolving marketplace.

The bottom line

Private equity has fundamentally changed the rules for CPA firms. The question is no longer “Should I explore this?” but “How do I position my firm to thrive in this new environment?” Whether you pursue PE or not, staying informed is the only sustainable strategy.

To all Virginia CPA firms: Now is the time to get educated, assess your options, and take proactive steps to secure your future.

Phil Whitman, CPA, is CEO of Whitman Transition Advisors, a leading M&A advisory firm for CPA practices. He has more than 25 years of experience working with and in CPA firms, covering succession planning, M&A, and practice sales. Visit whitmantransition.com for more.