Private Equity in Accounting (Part 1)

One of the biggest topics in the accounting space has been Private Equity’s new found interest in acquiring accounting firms. Overall, the discussions around PE have been mostly negative - that they’re here to turn a quick profit and that it will be negative for the professionals working at those firms. So I decided it was time I did some digging in the data we collect to see what the numbers tell us so far.

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For part 1 of this analysis, I’ve focused in on salaries - I looked at the average salary increases for PE backed firms versus the average salary increase for non-PE backed firms.

On average, PE backed firms had a higher salary increase. What was also interesting, was that while non-PE backed firms seemed to have larger increases more aimed at junior levels, the firms that had PE backing favoured more senior employees for larger raises. I had some conversations with folks who acquire firms and this was consistent with their expectations, given that in a firm acquisition you are largely paying for the talent and the client relationships. In some cases, Senior Managers are losing their incentive that came from the upside of becoming partner, so they saw larger increases to their salaries to help bridge that difference.

Next, I took a look at PE firms’ salary increase timing. On average, firms had a 1% higher increase in salaries in the first salary increase cycle following an investment from PE than in years following the PE deal. So although relatively minor, it seems firms are re-evaluating comp in years where the deals are happening, then may be less generous once the dust has settled.

Stay tuned, in the next edition of the newsletter, we’re going to be looking at bonuses, then in Part 3 we’ll be looking into some qualitative measures, like job satisfaction and hours worked.

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