The accounting profession is undergoing a seismic shift, with private equity (PE) now firmly entrenched in our landscape. As someone who’s advised on 30-plus PE-backed CPA firm transactions in recent years, I can attest this isn’t a trend — it’s the new normal. Here’s what partners at firms need to know about how PE works, who qualifies and why education is critical.

How PE Works

The players: More than just PE firms

• Family offices often seek longer holds (10-plus years) with less aggressive growth mandates.
• Pension funds/wealth managers typically target stable cash flows.
• Short-term versus Long-term holders: PE firms may flip a firm in three to five years; others hold indefinitely.

Deal structures: Majority ownership versus minority ownership

• 60/40 splits are common: PE buys 60%; partners retain 40% as “rollover equity” (reinvested into the deal).
• Local versus TopCo rollover: Where your 40% sits impacts whether you control your own destiny or are impacted by the performance of the entire group.

Valuation: It’s about EBITDA, not revenue

PE firms evaluate CPA firms based on adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), not top-line revenue. Adjustments to EBITDA might include owner compensation adjustments and non-recurring expenses.

Multiples: Adjusted EBITDA X Multiple = TEV

Example: A firm with $8 million in revenue and $2 million in EBITDA might command a 5x multiple, yielding a $10 million total enterprise value (TEV).

Real-world benchmarks: Firms once fetching 3.5x to 5x EBITDA now command 4.5x to 8x, depending on niche and geography.

Payment Terms: Highest multiple ≠ best deal

• Upfront cash (typically 50%) with balance paid over five years
• Working capital requirements (e.g., three months’ cash left in the firm versus more)
• Huge variations in calculation of EBITDA (higher EBITDA times slightly lower multiple may yield greater TEV)

Who Should Consider Private Equity?

PE isn’t for everyone, but every firm should evaluate it. Ideal candidates have the following:

• EBITDA ≥ 15% of revenue after partner scrape (reduction in partner compensation). Firms below this threshold may struggle to attract interest.)
• Growth-ready: PE seeks scalable platforms (firms that have track record of organic growth as well as successful M&A growth).
• Leadership teams with poor internal succession. PE brings professionalized talent acquisition and has better odds of engaging younger partners for succession.

Why Education Is Non-Negotiable

PE-backed firms are your new competitors. They can:

• Outspend on talent: Offering salaries 20% to 30% above market
• Leverage capital stacks: Funding acquisitions
• Move faster: Streamlined decision-making versus traditional partner models

Even if PE isn’t right for your firm, understanding these dynamics is critical to competing.

The Bottom Line

Private equity has reset the rules. The question isn’t “Should I explore this?” but “How do I position my firm to thrive in this reality?” Whether you pursue PE or not, ignorance is the only unsustainable strategy. The time to get educated is now.