Transitioning an accounting firm from the traditional partnership model to a private equity funded company model is complicated. The shift in ownership is not just a financial change; among other things, you’ll also need to revisit the firm's brand, culture, and client relations. While private equity continues to influence wider industry practices, marketing can help firms that have accepted PE investments to make formative decisions early in the transition to set themselves up for long-term success.
We're currently working with a firm that has accepted a private equity investment. Here are some of the ways we're helping them to address questions around the firm name, employee engagement and client retention.
Understanding the Private Equity Influence
advisors are forecasting that a substantial fraction of CPA firms will be private equity-backed within the next five years. For firms being targeted, the shift in ownership marks the beginning of a new chapter, one that private equity sponsors likely expect to be defined by exponential growth and efficiency.
The strategic aim of private equity firms is clear – they inject capital with an expectation of substantial ROI through targeted growth, operational improvements, and the exploration of new market segments. These acquisitions are often accompanied by stringent expectations related to outreach, market share, and client retention.
That's why firms can't wait to bring in their marketing advisors. Firms need to set about achieving the ambitious targets set by their private equity stakeholders, while simultaneously preserving what makes their firm great. It's likely that these two objectives go hand-in-hand, but perusing them will require more than business as usual. Firms need to be ready to adopt innovative approaches that align with their new circumstances.
What's in a name...after a PE acquisition?
The question of brand identity will be central for any firm following the private equity investment. At the very least, most firms will need to modify their firm name since they are technically no longer a CPA firm. Additionally, growth through acquisition seems to be the prevailing strategy for these firms. This introduces another question around the language firms will use to refer to the practices they acquire. Are the acquired firms a subsidiary of the firm? A division? Incoming firms will want to understand this early on in the process. Immediately following the PE investment, things seem to happen very quickly, so knowing what decisions need to be made in advance is helpful.
Another consideration is what name the firm will use to go to market in the future, for example, Grant Thornton is a highly regarded and established global firm. It would make sense for the leadership to want to maintain that brand. They have announced they will operate as Grant Thornton Advisors, LLC and a separate entity, Grant Thornton CPA, LLC providing attest services. Future acquisitions will come in under one of these Grant Thornton brands. Taking a different approach, private equity group Ascend is developing their "platform"; acquiring firms while maintaining firm independence. Each firm is seemingly free to make their own acquisitions under their brand name.
The first private equity investment in an accounting firm only happened in 2021, so no one can say for certain what the lifespan of these relationships will entail. We are seeing hints that in time these firms may choose to fully rebrand and rename the organization following a period of rapid growth. Whether these decisions will be tied to further organizational and structural shifts, or simply to better reflect the current state and future trajectory of the firm, it seems clear some new firm identities are on the horizon.
Firm leaders and their private equity partners need to start the naming and branding conversation early. There are four paths forward: 1) Like Grant Thornton, Every acquired firm and tuck-in rebrands to the firm name of the initial PE invested firm upon acquisition; 2) the acquired firms and tuck-ins maintain their brand names until an eventual full-firm rebrand after the initial growth phase; 3) a new firm brand is established at the outset and all of the firms adopt this name upon acquisition; 4) like Ascend, every firm keeps its own name with the PE platform mentioned (or not). Each of these has pros and cons, and there’s no one answer since each firm’s situation and goals will be unique. But if you’re going to change the firms’ names to a single name, we’re partial to option 3 for the clarity. This doesn't even get into issues of how you go to market as this larger firm! The middle-market audience is vast and there’s a lot of competition for these clients. We could (and probably will), write an entire article just on brand differentiation for private equity backed firms, but just know that this is going to creep up quickly.
What Your Team Members Need From You
Central to any firm’s success is its culture, and a major change like this is going to put it to the test. Firms likely attracted the attention of private equity in part due to a strong culture that has led to long-term, productive and happy team members who provide an excellent service. Transparency, timely sharing of information and honesty will be critical for firms that want to retain employees during this transition.
And change will happen fast. The firm we're working with smartly recognized they needed a reliable communications plan and methodology for communicating with team members. With so much change and decision making happening, they couldn't afford to start from scratch anytime new information was available. We've worked with them to develop a comprehensive plan that provides direction for announcements and two-way communication with their team members and incoming employees as appropriate when new acquisitions are made or there is other firm news to share.
Team members will want to know what the changes are, how they will be affected and what will stay the same. Remember, when people don't have information, they will fill in the gaps based on their own experience, fears and partial bits of information. Even though it may seem burdensome or unnecessary to share developments with the team, firms should mitigate the rumor mill by being open and forthcoming.
Plus, it feels bad to team members when they hear about something for the first time online or don’t have an answer when a client calls. At the very least, any news that will be shared outside of the firm, whether internally at another firm, through a press release or client email should first be communicated to the existing team so no one is caught off-guard when a client calls or they open their news feed.
Your investors probably expect the firm to retain the professionals that have led to the firm's success, so helping them to feel settled, informed and valued is an investment in the firm's long-term goals. Developing and nurturing trust is key in the early stages of the transition.
Client Communication That Leads to Client Retention
Just as providing your team a sense of continuity, inclusion and intentionality, your clients and referral sources will need the same thoughtful approach. Early engagement with key clients and stakeholders can serve to strengthen relationships and preempt concerns. A strategic timeline for communicating with clients will take into account what will matter to them most and when. For example, the week before the tax deadline is probably not the time to announce a major change. Instead, think about what will matter most to clients when they hear the news (Will I work with the same team members? Will the prices stay the same? Is there a new phone number? and so on) and give some thought as to how and when to distribute this information to your clients. For many people, as long as the things that matter to them stay the same or the transition to a new way is handled smoothly, the private equity investment won't rattle them.
If, like our client, a firm is commencing on a period of active acquisition, part of the communications playbook should include how much information to share and who needs to know. If you bring on several small firms with just a few partners each, does the entire network need to receive an announcement? Will only the clients of the incoming firm be informed of the change? How do you want the story to unfold for clients of regional or national firms that come in? While it may seem easier to just let these acquisitions go by and do a big reveal of a rebrand a year or two down the line, some clients might be quite shocked to discover their regional accounting firm is now a national (sometimes international) top 100 firm.
Don't forget the benefits! With so much to do with the day-to-day decision making and managing of the firm internally, you're also working toward changes that could be fantastic for your clients. Whether it’s expanded service offerings, a broader range of industry knowledge or niches, or new technological capabilities, be sure to celebrate the additions that this new investment brings to help support clients and their businesses.
What happens next?
So far we've only touched on the earliest stages of how marketing can help firms that have accepted private equity. Looking ahead, private equity investors' emphasis on growth will shift from acquisitions to business development and cross-selling. That’s when marketing becomes a central player in the firm's long term success. The next steps will be differentiating the firm's advisory and niche industry services, implementing modern pricing structures, and adopting technology to increase efficiency and improve outcomes (hello, AI).
In Conclusion
The period following the private equity acquisition of an accounting firm can feel like a whirlwind. By understanding the expectations of the new ownership, prioritizing team members engagement, and communicating with and retaining clients, firms will set themselves up for success. Marketing already touches so many areas of the firm and can continue to drive that growth and success. Curious about private equity? We are too! Let's chat.