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Private equity has quickly become one of the most talked-about developments in public accounting. But the profession is still trying to determine what it really means for firms, talent and long-term strategy.

In this episode, Chelsea Summers speaks with Stuart Ferguson, managing partner at Point Advisory, now Stout Strategy, a firm that has advised more than 15 of the top 25 accounting firms and dozens more globally.

Together they explore how private equity investment is changing the competitive landscape for CPA firms, why PE-backed firms are growing faster and how governance (not just capital) may be driving many of the operational differences we’re seeing.

The conversation also digs into the tension many firm leaders are feeling: concerns about culture, talent and long-term professional values versus the measurable growth and strategic discipline PE-backed firms are demonstrating.

Stuart shares insights on where private equity is investing, why advisory services are becoming central to firm strategy and how leadership teams can rethink governance and strategy, even without outside capital.

Chelsea and Stuart also look ahead to what the next five years may bring, including:

• Consolidation across the accounting market
• Increased investment in advisory and technology
• Possible IPOs of accounting firms
• Greater diversification into services like legal and wealth management
• The emergence of AI-native accounting firms

Whether firms pursue private equity or remain independent, one theme is clear: the profession is entering a period of significant change, and leadership strategy will matter more than ever.

Welcome back to the Inside Public Accounting podcast, where we bring you numbers and narratives from the accounting profession. I'm Chelsea Summers, Executive Director of Inside Public Accounting. And today we're joined by Stuart Ferguson, managing partner at Point Advisory, which very recently joined forces with Stout. Point, now Stout Strategy, is a boutique strategy consulting firm known for its industry expertise. Relevant to today's conversation, Stuart's team has diligenced or advised more than 15 of the top 25 accounting firms

as well as another 50 outside of the top 25 and another 30 globally. Stuart leads Stout Strategies operations with nearly 20 years of experience in strategy consulting. Prior to point, he worked at Bain & Company and began his career in tax consulting at KPMG. He, like many of our listeners, is a CPA. On today's show, we're going to explore how private equity is reshaping professional service firms, how data and strategy intersect.

and decision making and what trends executives should watch as they plan their next phase of growth. We'll also pull insights from the latest IPA data to ground our discussion in real trends around firm growth, valuations and investment activity. I'm excited to do this, Stuart. Yeah, so let's get started. Last year, IPA surveyed firm leaders on private equity's impact and the results were almost perfectly split.

Me too. Thanks for having me on.

39 % say PE is raising the competitive bar. 39 % say it's too soon to tell and 23 % say no. Even among managing partners, nearly half say they're still undecided. So from where you sit, why do you think the sentiment is so evenly divided on public accounting right now?

Yeah, it's fascinating data that you guys collect. We've been huge fans of the data that IPA has been collecting and sharing for many years now. So we appreciate what you guys do. This particular factoid, if we take a little bit of a step back, PE has deployed over $10 billion of capital across the CPA market over the last four years. So it's undoubtedly having an impact on the market.

I think the reality is that the visibility of that impact isn't going to be p to mark spread. So a lot of folks frankly won't see how it's changing the competitive landscape because a lot of that investment or a lot of those efforts have also been around the diversification of capabilities, essentially moving further afield from what traditional CPA firms would be serving. There's also been a shift in terms of the ideal client profiles. So

where some of the PE back firms are focusing their time has also evolved. I'd actually sense or anticipate that in some instances, some folks might feel like there's less competitive pressure from some of their PE peers, assuming that they've kind of evacuated a particular exit or particular part of the market, creating some opportunities. As an example, ⁓ there is much less interest amongst PE backed accounting firms to serve public company audits.

So in some respects, you would actually see a reduction in the competitive intensity or the competitive bar not being elevated as a consequence of that. think some of I'd probably be in the camp of it's too early to tell. A lot of those strategies or a lot of the PE backed firms are kind of early days in terms of the execution on their strategies. But I think longer term, it's tough to assume that with the billions and billions of dollars flowing into this market.

the implications of the supply and demand side won't be felt across the participants of the market over time. Excited to see Chelsea in three years when you run this same survey question, how different the responses are at that particular juncture.

Right? So you talked a little bit about them moving out of public company audits without naming names, but where do you see them investing more into? Where is it going?

Yeah, so I think the longer term, one of the key thesis dimensions that have gotten a lot of folks excited is looking at the big four as a template and recognizing that the big four now really represents professional services more broadly. Deloitte, as an example, has the largest advertising business with Deloitte Digital. They all have investment banks. They don't do much in wealth management, but pretty much everything else, even KPUG is a law firm in Arizona. They have law firms globally. They all have law firms in France, as an example.

So there is a very diverse scope of services that the big four have demonstrated that CPA firms can be eligible to participate in. Quite a few of those scoped out services are very high growth and also right smack dab in the CFO's super view of responsibilities. So a lot of that focus for firms has been let's decrease our exposure to potentially higher risk slower growth areas and let's...

either double down or start exploring ways in which to increase our access, increase our surface area in some of the higher growth parts of the market. Some of the key areas that are really popular, any and everything associated to cyber has been a core focus area, not just from like the compliance type of work that Shellman is really well known for, but looking at other flavors of cyber, either strategy or the implementation of different cyber systems or even managed cyber services as an example. ⁓

CAS slash outsourced accounting. There was a step change in terms of demand coming out of COVID and confluence variables contribute to that. But that is a hot growth market that a lot of folks are focused in. More around a broader breadth of tax advisory capabilities, more around different flavors of M &A capabilities that historically might not have been included in the standard scope of services for CPA firms. And I could go on and on, but I'd say the focus is more around diversification in many instances.

Yeah, and it sounds like all of those really fall into that advisory bucket, not the compliance. So really leaning into those advisory services. Okay. So when we look at the IPA 100 performance data, PE backed firms are growing dramatically faster. So 38 % total growth compared to 12 % for their non-PE backed firms. And that includes M&A growth and organic growth, but even the organic growth is higher.

Very much, very much so.

Absolutely.

So how do you reconcile that performance gap with the ongoing skepticism we hear today from leaders?

Yeah,

I think the data speaks for itself. If we look at both organic and inorganic growth, it's no surprise that from an inorganic or M &A standpoint, the PE back firms are much more acquisitive. That is a core thesis tenant for all the firms and they've recognized and now are reconciling the realities that there's an opportunity to consolidate, especially the middle to lower end of the market and very much so consolidate across the upper end of the market as well with

It's Emergence Vecals, as you saw with Baker, Tillian, and Moss Adams. But the fact that they're growing faster organically, I think that speaks to a couple of different variables. It's hard to point to one in particular, but I'll highlight a couple of them. One would be that the zeitgeist for PE-backed CPA firms is very much so focused or intentionality as me and others have gotten to the hoods for these businesses for CPA firms. One of the things that's really impressive is how entrepreneurial they are and opportunistic.

But what ends up happening is ⁓ there's kind of an organic pursuit of a lot of small opportunities where ends up being hobby businesses or just very small practices within the firms, which become distracting. The PE sponsors are very focused on how do we ensure that our firm, the PE backed firm's leadership team has clear eyed conviction on where we have a right to win. And then let's focus our time and energy on an area where our value proposition has great resonance.

and we can outpace our peers in that particular area. could be an industry, could be a client size, it could be a different type of service, it could even be a geography, but let's instead of being everything to everyone, really focus on where we can serve and win more wallet share or market share relative to our peers. And I haven't seen that same level of discipline outside of the, there's firms that are not P-backed that have very, very focused strategies, very disciplined approaches to execute on those strategies.

But I would not say that's uniform across the market and it is more consistent now across the PE backed firms. And you're seeing it show up in the growth data.

Yeah, sounds like they have intentionality in where they're going and what they're

perfect

word for it. So you in one word said what I said in about a thousand. So yes, we'll say it's intentionality.

I'm very good at being concise. you talked a little bit about getting under the hood of these firms. So the IPA data shows that PE backed firms are structurally different. They have leaner cost structures, lower personnel costs as a percentage of revenue, and there's a greater shift towards non-compliance, which we already talked about, and higher margin services. From your experience, is this transformation driven by capital alone?

Yes, better than me.

or by the governance and accountability changes that come with the PE ownership? Can this be, I guess the real question is, can this be replicated without that private equity backing?

It's a great question. I think in the traditional partnership model, it would be tough to replicate the level of governance or the ways in which governance are being applied in the redesigned structures of the PE-backed firms that have the benefits of the APS and just the air cover of transaction to push through a lot of changes that otherwise would be really challenging to get consensus across a partnership that everybody would vote or a sufficient number of folks would vote for. ⁓

So I'd actually say that it's more related to the governance than the capital ⁓ that they're able to execute on these structural changes and these growth agendas. I think at quite a few firms that are not PE backed, I hear the leaders say, can be a bit hand-in-hand combat for me to get folks to convince folks that we should be investing in new capabilities that are not compliance driven, that feel distant from the core.

or that we should be reorienting our strategy from a technological standpoint that without clear conviction that we're gonna get a return on some of these investments, we wanna play some bets and folks push back on, that's their personal balance sheets that in aggregate are funding, funding the bets for the business. So the fact that we've got clear governance, the leadership teams have ⁓ more space to maneuver because...

within the parameters of their mandate, they have decision-making rights that facilitates greater velocity and enables them to make the tougher decisions in real time, ⁓ as well as ensure that they're deploying sufficient capital after the right sorts of bets. So it's more much like what you would see in a large corporation, it's business case driven and then KPI evaluated. Not to say it's paint by numbers, but these are becoming very

metric driven organizations where you're evaluating how are folks performing against the KPIs, how are different mandates stacking up against what the business cases were, and that dictates whether or not you're able to continue driving forward. I think there's more latitude for that within a PE backed firm, not think, I know there is, than a firm that is not PE backed. So more succinctly, what you'll probably hit on is that governance as the down arrow is the biggest, most important factor.

in facilitating a change or transformation for these organizations across talent, technology, and kind of service line focus areas.

So a firm, what I'm hearing you say is a firm, even if it doesn't have the private equity backing, if they take a step back and look at their governance structures and the partnership model that they've always operated under, maybe a shift in that will really lead to some of those positive outcomes that we're seeing in the private equity backed firms. So for those firms that want to stay independent, there's a way to do that and still see some successes that are seen by the private equity backed firms.

I

could not agree more. I think it's really important to note that. I mean, think your capital strategy is downstream of your overarching commercial strategy. And the tail has been wagging the dog a bit for the industry where maybe it's fear of missing out FOMO as my kids would say, but you know, they, see transactions at these incredibly high multiples and they explore what's the mark to market for us versus what we've been trading shares at internally. And they realize like, my gosh, it's wildly different, but it's that.

is the catalyst as opposed to thinking through what am I trying to achieve over the next five to seven years? And then once I start stacking up the initiatives required to execute on that, what capital do I need to deploy? And then what kind of governance structure do I need to ensure is in place to execute on that strategic vision for the business? So I think if an independent firm is looking at the disruption in the market and saying, we don't need to change, I think that's fundamentally wrong.

If an independent firm is looking at this disruption market and saying, don't need private equity capital to be successful, I totally agree with that. What they need is consensus within the business that they'll allow for the senior leadership team to execute on a shared strategic vision with some flexibility as opposed to everybody gets consensus for every decision kind of death by democracy sort of impact for the partnerships. So it's a nuanced point, but I really want to emphasize.

Right.

We don't at Stout Point's point advisory believe that private equity capital is the solution. I think it ends up offering a very valuable technology for firms that need capital deployed to accelerate growth. But the first question is, what are you trying to be and make sure that it's not just your inertia case is what you're gonna try to be. Because folks are, if their inertia case is their strategy, they're on a bit of a burning platform.

At some point, probably in a hard way, folks will start to realize that.

Okay, so culturally, in a lot of these firms, talent is where the concerns start. So nearly half of the survey respondents said that private equity has created morale or engagement challenges for its staff. Yet operationally, IPA data shows turnover and utilization are nearly identical between private equity and non-private equity backed firms. So how do you explain the disconnect between the perception and the performance at these firms?

Yeah, so I think the perception that private equity comes in, doesn't care about people, cuts costs, and then flips businesses to make a lot of money is a bit of a kind of a stale stereotype that I don't think there's a lot of evidence for that in the knowledge economy. So if you look at other industries, I think you could actually argue pretty cleanly with a lot of data that supports you that that is what private equity has done.

As private equity over the last decade has shifted its focus to the knowledge economy with recognition that the assets go up and down the elevator every day, ⁓ they've had to change how they think about the strategy for this market. And the strategy, the investment strategy for this market is one around growth, not one around cost cutting. And anybody that's been in a professional services firm knows that your growth is constrained by two factors. One,

Are you able to get enough clients that want to serve you too? Are you able to get enough people to serve those clients? And a lot of really high quality firms struggle more with the talent factor than they do the demand side factor. They've got more than enough clients, not enough high quality people to deliver against the mandates for those clients. Private equity firms know this. And so a lot of their focus has been around how do we ensure that we safeguard what's special about this culture and amplify and scale it.

as opposed to how do we figure out a way in which to maximize, which is an important factor that I'm not gonna say they don't care about. They care a lot about that. But they also recognize that hamstringing the business ⁓ culturally has long-term value implications. So their interest in culture is not benevolent. It's linked to their recognition that that's core to the long-term strategy of the business. Now, that being said.

part of the goal has been to implement a more meritocratic model within these businesses. So if an organization of partnerships are notorious is a little bit melodramatic. Some partnerships might fit the mold for allowing lower performers to potentially stay in the business longer than they would have wanted to because that's kind of the ethos of the organization. That is much harder to do now. If somebody is not hitting their targets,

If it's lower end, if it's utilization, if it's a higher end, if it's a sales target, if it's a target, if it's satisfaction for their team, they're going to be encouraged to find a better fit for them in terms of their career priorities. I've heard, and this is anecdotal, so I hate even saying it, but I think there is kind of ⁓ an outspoken sect of the market that is kind of falling to the wayside associated with some of these changes in the organizations.

that are kind of capturing a lot of the airspace. I do anticipate though, and this is gonna be something that needs to be tracked really closely, that some of the private equity backed firms will get this wrong. They are having a lot of pressure applied to grow. And depending upon how those leadership teams manage and deal with that pressure, it has huge implications in terms of what it feels like to be an employee in an organization that feels squeezed for growth and.

I think as a consequence of that, some of the cultures could be at risk. And I'm not saying I see that today, but if you tease out or play out kind of what the longer term implications could be, I think it's a very real risk that hopefully the leadership teams are very sensitive to.

So it sounds like you talk about a couple individuals that are kind of maybe raising some red flags. It's almost like the Yelp one-star reviews. Like you don't leave if things are, as they always have been, you leave a review if things change and they're different and you're unsatisfied. So for those people that might be vocal disgruntled employees.

Yeah.

Yelp,

Yeah, because I mean, that's a, that's a phenomenal point. Like on Glassdoor, who's most frequently populating Glassdoor? It's the people that are the biggest advocates and the biggest attractors. And so you really don't have a sense as to like, where's the median employee fit on kind of a scale of one to 10 in terms of satisfaction? Like I could see some people hate it and I can see some people love it, but is this indicative of the overarching theme for the businesses culture or employee satisfaction? So,

We run a talent survey, Chelsea, and we stress test on an annual basis how different are the scores for the PE back firms versus the non-PE back firms. And there's been nothing statistically significant thus far in terms of how satisfied folks are. What we have found, which is interesting is the PE back firms have less.

Interesting.

We do the E-NPS, the employee NPS, we're on a scale of zero to 10, same as like an NPS. You're extremely familiar with this, but for anybody else who's listening in, on a scale of zero to 10, how likely are you to refer this company to a potential friend or colleague to be an employee of this company? ⁓ The PE-back firms have much fewer neutrals. Folks either find themselves as promoters or detractors at a higher clip than the firms that are non-PE-back, which tend to have fewer promoters.

and much fewer detractors and way more neutral. The scores end up being very similar, but there's a little bit more polarization within the private equity firms than there is outside of the private equity firm. So we'll track that trend closely, but we found that particular ⁓ insight in the data to be interesting.

Interesting.

Yeah, and you may not have the answer to this, but were there any firms that you tracked that information prior to the ⁓ capital infusion and you're seeing that divide or are you just comparing versus current where firms currently are?

That point was a comparison between where firms currently are. But one of the most interesting things that we have found to your point is that firms that were doing a little bit worse than their peers before that are PE backed, that trend accelerated. Firms that were doing a bit better than their peers before, that trend accelerated. So private equity has almost been like an amplifier for whatever's going well. If there are cracks in the walls, those cracks are to be further exposed.

if your foundation is strong and you can continue to build on top of that platform, then private equity helps to accelerate that. ⁓ So private equity in and of itself isn't necessarily causing these issues. If there were issues, private equity will amplify those issues. If there were advantages, private equity will amplify those advantages. And it's mostly just a reality of the velocity that firms are required to run at coming out of firms are required to run at coming out of those transactions.

Sure, well that's an ⁓ interesting data set that you have and would love to continue to hear more about that. one of the, yeah, I would love to, we'll share it with the readers.

We'll trade notes. We trade data a lot, Chelsea. I'll be sure to show you some of those insights.

So one of the top concerns in IPA survey was an increased focus on the short-term profitability and that potentially eroding firm culture, client trust, professional values. From your perspective, what separates private equity investments that create sustainable firms from those that risk the long-term damage?

yeah, I love that question. I'd say the one thing that I like to think that a lot of the private equity firms understand this, but I don't think all of them do, is kind of the almost the existential risk of reduction in quality, what that has to the CPA space. Me as a CPA,

I mean, we're raised very early on in our professional career to appreciate how important our role is in the economy and in society. mean, the way in which you can have financial transactions and safeguard the role of capital markets, which are integral to the success of our country and our economy, is based upon whether or not CPAs are holding the lines on ensuring there's transparency and high quality information being provided to folks that are trying to facilitate growth for markets.

that's an incredibly important role for our economy. And if there was ever anything that was undermining that, then I say the kind of hyperbolic word again, but it becomes existential. I've had this conversation with lots of sponsors and ironically enough, lot of the sponsors, PE firms, folks that are investing in space were also like me, CPAs that had a career change. So they have

an appreciation of kind of the uniqueness of the culture of CPAs and the importance, how we put huge weight on ethics. So I keep that kind of as a backdrop. Now, when I think about what would create an insured focus on quality is for private equity firms to appreciate that your success, and as a consequence of that, the expansion of EBITDA is linked to the continuation or the continuity of quality.

And I can say very confidently that the private equity firms really appreciate that particular point. Nothing scares a private equity firm more than the prospect of being on the front page of the Wall Street Journal because their audit had an issue and they're the ones being drawn through the mud. That is terrifying. I think private equity firm backed firms care more about bad press than non-PE backed firms. And so...

they almost have more interest in maintaining a certain level of quality than I think a lot of firms that are not PE backed and not to say that non PE backed firms don't care about quality. I think they all do and I think the PE backed firms are very much they're not focused on like, well, could we cut costs here even if it decreases quality? Like the question is always around the framing of are we able to sustain and maintain quality? Now the way you keep that is by ensuring that you don't have

almost like the public market focus on quarterly performance. And if you miss quarterly performance, let's start squeezing folks to ensure that we hit our numbers. So having that temporally like a longer term perspective ensures that the immediacy of performance is not over indexed on. Cause I think that kind of pressure applied is when you really start to have issues. And in the first year investment, the majority of private equity firms, not all of them,

actually drew down on EBITDA below what they were targeting to either pay their people more or to invest more back in the business. So there has been a willingness and an appetite to do the right things for the business. Longer term, as the market growth slows, I think the big question is how durable is that commitment? We're coming out of a period of really strong growth post COVID. We're entering a period where we anticipate growth is going to be harder to come by.

And at the same time, there's never been more PE back firms hungrier for growth. So growth is slowing, firms want to be growing faster. Like that's an unnatural friction point. So it's a phenomenal question, Chelsea. And I think a lot of folks are very keen to keep abreast with how firms are tackling that particular challenge. But I would emphasize that I don't fundamentally believe that PE firms are willing to

Forego quality in exchange for better financial performance. I think they recognize the long-term implications of that for the asset class are too risky

Yeah, so through a lot of what I'm hearing you say, it sounds like we may have a misconception of these PE firms based on what they've done in other industries and those assumptions may not hold true in the way that they want to show up for accounting firms.

Very true, very true. Yeah, I mean, as I sit down and like in the early days, one of the major thesis points that was being rolled out as folks were exploring and investing in accounting firms was that there was an opportunity with the reorganization to unleash a lot of potential value to attract more talent, to amplify cultural dimensions, to make them more meritocratic, to reward top performers in a way in which they weren't historically rewarded. ⁓

And it was very focused on like, how do we ensure that we attract and retain top tier talent? It was not focused on how do we, because they felt like that input would drive their outputs. It wasn't focused on, I see an opportunity to maximize EBITDA by cutting these costs or reverse finding these ways. It was an extremely people-centric thesis and it still is. I think there's pretty broad and obvious recognition from PE sponsors like.

Yeah, the only way this works is if we're able to create businesses that are really interesting places to work for people that do great work for clients. Like if we can't do that, then nobody's going to buy the business when we're trying to exit our position. And people like me are going to diligence the hell out of that point. We're going to talk to clients. We're going to talk to former employees. We're really going to understand is, they just cutting corners to create a profit or, you know, are they building a business that's intended to be a forever business?

And you can tell.

Interesting. So many firm leaders have told us that it's still early and that the real impact of private equity won't be clear for let's say five to 10 years. So what indicators should firm leaders be watching now to determine whether private equity will be a net positive or net negative for the profession?

Yeah, I think.

I mean, the net word's really important there. I can immediately start thinking of what's positive about it and then what's negative about it and then net net, does, is it more positive, more negative? If I take a little bit of a step back and just think about the impact it's having on the industry, I have a hard time imagining that any industry that becomes the recipient of billions of dollars of capital, as well as, know, immeasurable amounts of experiential capital and intellectual capital flooding into that space,

more interest and appetite for innovation, more interest and appetite for refining employee value propositions, that that industry overall isn't positively impacted. Now am very appreciative and sensitive to concerns about the overarching industry's soul being at risk as a consequence of this over-indexing on capital. ⁓ But I also appreciate the importance of catching up a bit for this industry relative to other industries.

and benefiting from, again, the experiential capital that private equity and other types of advisors that are being paid a lot of money to come in and help create better businesses, I think that has a positive impact overall. So what should we be tracking? ⁓ Well, let's think what are the major reasons that private equity is interested in this space that are positive? One of them are to create cultures that are ready for technological adoption.

create companies that have the capital to invest in those technologies to ensure that they stay relevant and increase the quality of the deliveries, deliverables for their clients. I think we can track that across PE firms versus non-PE back firms, which firms are more effective at preparing AI readiness and then AI implementation. And you'll probably start to see some dispersion between haves and have nots in that respect. We could go and have a separate podcast just on

On that, Chelsea had lots of thoughts on many things, but that in particular. But I'd probably focus on adoption or technology that I'd be focusing on for firm leaders that are evaluating is this good or bad talent and just continue to keep your fingers on the pulse of are folks still energized and motivated to be accountants? Does this enhance, put a little bit more swagger in the step of folks that have chosen this career path or?

Bye.

you know, are we going to continue to see a bit of a slide and interest in being CPAs and kind of what that represents as a potential career path? So if that's enhanced, which, you know, an uptick in terms of retention, uptick in terms of laterals from other industries and our industry, then I'd also view those as key things to be tracking, keeping abreast of.

Yeah,

sounds like net positive if we're retaining and attracting talent. That's something that we're

Yeah.

Well Chelsea, what do you think? Net positive or net negative? I'll put you on the spot because I imagine a lot of your readers have strong perspectives on that front.

goodness.

Yeah, and I think I'm in the camp of it is still too early to know. I am kind of joking that there's a lot of trends where we're circling last year and this year as inflection points that we're going to see some big ups or big downs and not quite sure which it's going to be yet. it seems like, and back to the beginning of our conversation with the governance models, I think the positive is really

seeing another way that your firm could be run. A lot of these firms have looked very similar for the last hundred years. So seeing that there's other possibilities out there that also lead to success, I think is a positive. Even if a firm doesn't choose to go to private equity for funding, I think that they can learn a lot.

Yeah, this is great. And I appreciate your time. I've got one more question for you. And this is a good one. I'm going to ask you to get out your crystal ball. So where where's all this going? And what should we expect to see in the next five years? Do you anticipate there being a lot more mergers from these private equity firms? Do you expect to see a lot more investments? Do you expect to see turns to see roll ups to see IPOs to see crashes and burns? Like, where do think it's going?

Great.

I all of the above, not to sidestep your question. ⁓ I'll give a couple of hot takes that probably aren't that hot anymore. They were three years ago and I was saying, I think you'll see in the top 20, all the firms will be billion dollar plus businesses in the top 20. I think you'll see heavy consolidation at the lower end of the market, current trend for about another 24 months.

publicly traded CPA firms. I think you'll see one of the big four, if not more than one split and the advisory part of the business will go public. EY with Everest very publicly did not get there. In my mind across those four, it's not a matter of if, it's when. I think we'll see more diversification into very popular areas for private equity firms that are also focused on legal services and wealth management.

and you'll see CPA firms push pretty heavily into the RA space over the next five years. The pendulum swung away. That was out of favor over last five years. I anticipate it's actually gonna swing very much so back the other direction. I don't think Aprio will be the only firm with a law firm. I think you'll see as a consequence of MSOs an emergence of more CPA law firm type tie-ups in the middle and lower middle market. What other hot takes do I want? I think you'll see a couple of these firms

do very, very poorly that are PE backed. ⁓ Not all of these firms are created equal and yet valuations have been extremely similar across these businesses. I think some of the base cases, some of the underwriting cases for some of these businesses are overly optimistic. And if growth slows and it's harder to come by, yeah, I anticipate you're gonna see a couple that really struggle. And as a consequence of that, ⁓ the sponsors will not make the intended or anticipated returns.

And think they'll have meaningful implications in terms of the overarching willingness to pay for these businesses. So very much so a normalization of EBITDA multiples and valuations. And around that normalized median valuation, I anticipate you're to see much more dispersion where investors start to reward higher quality assets with two, three turns higher valuations and a discount lower quality assets by two to three turns. I have not seen that. I've seen most assets trade almost

unsupported by the data around the same sort of multiples. What was the last valuation? Well, we got to go 0.25 or 0.5 turns higher than that on this one. It doesn't make commercial or the industrial logic doesn't hold. I think you'll start to see more dispersion around the multiples and more dispersion around performance. think the last thing you'll see is the first successful

So you're telling me that I have to manage surveys run by robots now. another line in my resume. I can manage robots.

There

you go. I'm afraid, I'm afraid so it sounds really sexy when you say AI agents. So you can say like, interviewed lots of agents for the making of this survey. sounds, that sounds cool. So yeah, embrace it. Embrace it. Yeah.

Mm.

Interesting.

Well, I'm excited to see more about that. This was a great conversation. I learned so much and I think my framing of where we are has shifted a little bit as well. think what's clear in this conversation, it really goes beyond the private equity. It's about how firms are choosing to compete, how they're governing themselves and really how they're investing for their futures, whether they're taking the private equity outside capital or they don't.

Some of the lessons in accountability strategy, intentional leadership are the same and they're becoming hard to ignore for all firms. So I appreciate the time and this has been a blast. If you want to explore this topic further, we're gonna continue breaking down these trends using IPA's benchmarking data and survey data in upcoming podcast episodes, as well as in our reports. And you'll find our reports at insidepublicaccounting.com.

I will link to Stuart's information in the show notes if you want to chat with him and pick his brain more about what's going on in the space. But thank you guys so much for listening to the Inside Public Accounting podcast and thank you Stuart for joining us today and we're gonna see you next time.

Thank

you. Thank you for everything you do, Chelsea. Cheers.