Our first PE flip is in and well, buckle up for more activity in 2025

This newsletter is something a little different - we don’t really report the news but I wanted to cover this and why I think it matters so much. But first, a thank you to our sponsor The Net Gains: Insights you can count on

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Okay so Citrin Cooperman just announced a massive private-equity deal, but what is important about this deal is that it is a transfer of ownership between private equity groups. Based on the sources I was able to pull together, a deal had been announced in April 2022 with New Mountain Capital paying 11x EBITDA for its stake in the firm which was doing $315M in revenue. The new deal, announced just under 3 years later is happening at a 15x EBITDA multiple with the firm doing $850M in revenue. So if we assume the gross margin to have remained consistent (if anything, private equity involvement is know to squeeze more out of businesses, so it may have improved even) then we’re looking at 3.7x returns in a 2 year and 9 month timeframe.

Through the Big 4 Transparency Podcast, over the last 3 months I’ve spoken with a ton of experts in the field of PE in the accounting space, including a few offline conversations with folks who are part of these PE groups. It’s obvious there was a lot of interest in the accounting space, but there was always a looming question around exits - since there had not been any sizeable exits from initial PE investments, there were questions around who the second buyer would be, would the multiples arbitrage actually work out as top line revenue grows, and what would returns actually look like from those early deals.

And now this deal is going to answer a lot of those unanswered questions, and with such strong results I suspect we’re going to see an increase in activity in 2025. I’m also hoping that this could be a call to partners in non-PE backed firms that reinvesting in their firm, through talent, through tech improvements, acquisitions and more business development activities can very much be worth their while from an enterprise value standpoint. Reducing partner distributions for a few years does NOT mean a net loss, and there’s an opportunity to utilize that capital to see these kind of results.

If you’ve got an opinion on the matter I’d love to hear your thoughts!

Are you a decision maker at a firm, or are you close to one? I’d love to have a conversation about how Big 4 Transparency can help with your firm’s salary setting process! We’ve got a For Firms page on the website detailing what we offer, and I’d be happy to take 30 minutes to chat and to show you how we can help with your firm’s specific needs.