In recent years, few sectors have attracted the attention of private equity (PE) quite like UK professional services, particularly accountancy firms.
Once considered an unlikely target for institutional investment, accountancy firms are now one of the most sought-after targets in the professional services landscape. Over the past decade, billions of pounds have flowed into the sector as investors have chosen to back ambitious consolidation platforms. Over time, this is transforming what was historically a fragmented collection of independent partnerships, into an increasingly corporate and nationally competitive marketplace.
However, although the first phase of investment has been driven by consolidation, the next chapter will demand something more difficult. While buying accountancy businesses has proven relatively straightforward, creating incremental value from them is, surely, another challenge entirely.
The Move From Traditional Partnerships to Private Equity Platforms
For generations, accountancy firms operated under a relatively consistent model. Partners owned the business, profits were fully distributed annually, growth was mostly organic and investment often conservative. Where businesses combined, it was (at least optically) through a merging of partnerships
By entering this long-established industry, private equity has fundamentally altered that dynamic.
Today, most of the UK’s largest accountancy consolidators are backed by institutional investors with ambitious growth plans and demanding target returns. Azets, backed by Hg Capital before its acquisition by PAI Partners, has completed more than 100 acquisitions since 2016, creating one of Europe’s largest accounting and advisory groups. Similarly, Grant Thornton UK became one of the largest UK professional services firms to receive external investment following Cinven’s majority acquisition in 2024, marking a significant milestone in the evolution of PE ownership within the profession.
Other market leaders include Dains, backed by IK Partners, Cooper Parry, which received investment from Waterland before being acquired by Lee Equity Partners, Moore Kingston Smith, backed by Waterland, and Affinia formed through the consolidation of multiple former UHY Hacker Young offices with the support of Sovereign Capital.
Beneath these larger platforms, sits an increasingly competitive second tier of regional consolidators. Firms including Xeinadin Group, backed by Exponent Sumer, supported by Waterland, TC Group, backed by Horizon Capital, Canty & Co, supported by Boost & Co, Fortus and Hentons are all pursuing acquisition-led growth strategies across the UK market.
Collectively, these businesses have fuelled what many within the industry describe as a “feeding frenzy” for high-quality regional practices and specialist boutiques. Independent firms that historically competed only with their neighbouring partnerships, are now attractive acquisition targets for multiple well-funded consolidators allowing them to command exit multiples that their partners could historically only dream of.
And despite this wave of consolidation, the opportunities for M&A within the market are far from exhausted. The UK’s professional services market is still highly fragmented and has thousands of independent firms. For investors this creates an unusually long runway for further acquisitions. The dynamic allows larger platforms to continue acquiring smaller firms at relatively modest EBITDA multiples before integrating them into businesses valued at higher multiples. This ability to create value through simple multiple arbitrage has underpinned much of PE’s enthusiasm for the sector.
A Business Built on Predictability
But even setting aside the M&A opportunities, accountancy firms possess many of the characteristics PE finds difficult to resist. Unlike sectors that are heavily influenced by consumer confidence or economic cycles, much of an accounting firm’s income is driven by regulation. Their clients require annual audits, tax returns, payroll services, statutory accounts and other recurring compliance work, regardless of broader market conditions and their own trading performance. This generates something investors value more than almost anything; predictable and recurring revenue.
Additionally, long-standing client relationships, high retention rates and dependable cash generation make accounting firms particularly attractive businesses to leverage and scale. It is largely this resilience that has helped sustain investor confidence even during periods of economic challenge.
Hidden Opportunity
Although recurring revenue is a key part of their attraction, perhaps the greatest opportunity for investors lies within the firms themselves and the way they have traditionally been run. Traditional partnership models have historically prioritised distributing annual profits rather than reinvesting them. While understandable from a partner’s perspective, this has often resulted in years of underinvestment in technology, digital infrastructure and operational processes. Many firms still rely on fragmented systems, manual workflows and legacy software that constrains productivity.
But private equity investment changes the equation.
Access to institutional capital allows firms to invest in modern practice management systems, cloud infrastructure, workflow automation, cybersecurity, client portals and increasingly sophisticated AI solutions that many partnerships would have struggled to justify financially in the past.
For investors, these are not simply technology upgrades. They represent opportunities to fundamentally change the way accountancy firms operate and by so doing to transform profitability.
How AI Has Changed the Investment Thesis
And in real time, AI is becoming the defining operational story across professional services. AI is capable of eliminating much of the repetitive administrative work that consumes thousands of chargeable hours every year. For example, document reviewing, reconciliation, first-draft reports, audit testing and tax research can now be completed faster and more accurately with AI assistance. This is only the beginning of the disruptive potential of AI.
The result is not necessarily fewer accountants (although it probably will be), just more productive ones. Logically it should mean that managers and partners can devote more time to higher-value advisory work while firms increase capacity without recruiting proportionally larger teams. For PE investors, the implications are obvious; higher productivity means stronger margins, better cash conversion and faster growth.
This raises the first uncomfortable question in the professional services investment thesis. If firms become more efficient, who benefits from those savings?
Clients have already begun asking the question. For example, following the public rollout of AI within Grant Thornton, reports emerged that KPMG sought lower audit fees on the basis that technology should reduce delivery costs. Surely this demand has been made in multiple more discreet boardrooms. Conversations that once centred on hourly billings are increasingly becoming discussions about productivity gains and value pricing. For investors, improving efficiency may therefore prove easier than protecting margins.
Where the Investment Case Becomes More Complicated
Despite the enthusiasm surrounding professional services, accounting firms remain fundamentally different from software businesses. Although technology can improve operations, it cannot replace the trusted relationships that have historically sat at the heart of an individual partner’s value to their firm.
Clients rarely remain loyal because of a firm’s logo. They remain because of individual partners, experienced directors, reliable managers and advisory relationships built over many years.This creates one of PE’s greatest challenges in this sector; retaining their senior talent…
Traditional partnerships in mid-market firms offer a clear career path. Becoming a partner isn’t just a financial milestone, but a professional ambition that rewards loyalty, leadership and repeated success with a seat at the “top table”. For generations it has been a promotion that satisfied the soul as well as the pocket.
PE firms are replacing that model with equity participation, performance incentives and management share schemes and a seat at the top table only for the very few. Whether these provide the same motivation as traditional partnership over a twenty-year career remains an open question.
One thing is for certain, as more firms adopt institutional ownership, the profession itself may begin to evolve in ways that are yet difficult to predict.
Why Growth is Becoming Harder
The mathematics of PE investment in professional services are also changing.
Smaller regional acquisitions tend still to command EBITDA multiples of around four to seven times. On the other hand, larger consolidation platforms are attracting double-digit multiples as competition for substantive bolt-ons intensifies.
In other words, buyers are at risk of paying tech-company prices for businesses whose principal assets leave the office at the end of the day.
This significantly raises the bar for future returns. Simply acquiring businesses and benefiting from valuation uplift is unlikely to be enough for the current generation of professional services investors. Instead;
- Acquisitions need to be integrated seamlessly.
- Tech-programmes need to deliver measurable efficiencies (ROI).
- Cultures must be aligned to remove friction in operations.
- Partners and the next generation of partners need to remain engaged.
- Cross-selling opportunities need to be acted on.
- Operational improvements need to translate into margin expansion and not simply reduced revenues.
The Talent Challenge
Perhaps the most demanding challenge within the sector isn’t so obvious from headlines. The accountancy profession is experiencing increasing pressure on its talent pipeline.
Graduate recruitment has significantly slowed in parts of the market, while experienced professionals continue to leave practice for careers in industry, financial services (including private equity itself!) and corporate finance. And while technology can improve efficiency and perhaps replace the most junior tasks, it cannot produce experienced advisors overnight.
In the past, the promise of partnership often encouraged talented accountants to stay. If partnership gradually loses its traditional appeal under PE ownership, firms may find themselves competing even harder for future leaders. If the rewards on offer are the same as corporate rewards across the market, then they need to stack up at a pound note level. There is no soul food now on offer.
Summary
PE is undoubtedly transforming the UK accountancy sector. And arguably the sector, refusing to invest properly in itself at the expense of partner drawings, needed it.
It has accelerated consolidation, unlocked investment, modernised technology and brought a level of commercial discipline rarely seen under traditional partnership models.
But there is an Odyssian task here for the investment community. They must navigate the Scylla of retaining their efficiency gains as margin improvements and the Charybdis of retaining talented, experienced and relationship building and holding teams without the siren lure of “real” partnership”. And they must do so to a level that will persuade those they ultimately try to sell these assets to, that it is sustainable.
The easy wins have largely been captured, The fight for M&A targets has become tougher, valuations are higher and quality is harder to come by. Competition for clients is fiercer and clients, reading about all this investment in the press, expect more. Technology is rapidly changing the economics of professional services almost monthly, while the industry’s greatest asset remains its greatest vulnerability.
The firms that succeed over the next decade will not necessarily be those that acquire the most practices. Instead, they will be those that integrate acquisitions effectively, embrace technology without eroding client relationships, retain and enthuse talent and build businesses that provide more value than the sum of their acquisitions.
For PE, the opportunity will remain substantial. However, the next generation of returns will be earned not through buying accountancy firms, but by sustainably transforming them. If PE can deliver this then it will little short of genius. But it is a task that generations of partners in professional services firms could not deliver, so perhaps, for some, it will prove to have been hubris. Only time will tell…
