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Baker Tilly investment puts partnership model under spotlight

Author: ICAEW Insights

Published: 20 Feb 2024

The private equity investment will reshape Baker Tilly US into two separate organisations – but this latest foray by PE into the accountancy market doesn’t yet mark the end of the partnership model.

Baker Tilly US has become the latest accountancy firm to agree to private equity (PE) investment in a bid to reshape the organisation and accelerate growth.

The top 10 firm has partnered with PE firms Hellman & Friedman (H&F) and Valeas Capital Partners, highlighting private equity’s growing interest in professional services firms on both sides of the Atlantic. It also marks H&F’s investment as the first external capital to be invested into the traditional partnerships model.

The investment, due to be completed in early June, will hand Baker Tilly US access to additional “capital and capabilities to accelerate growth through investments in talent, technology and further strategic acquisitions”, the company says.

The deal will see the firm restructured into two separate entities – Baker Tilly Advisory Group and Baker Tilly US. The first will provide the firm’s advisory, tax and other consultancy services, retaining Jeff Ferro as Chief Executive Officer. Baker Tilly US, meanwhile, will offer more traditional accountancy services, with Jere Shawver, Managing Partner, Risk and Assurance, taking up the new role of CEO.

Baker Tilly US will operate as a separate legal entity in accordance with regulatory and independence requirements. Following the restructuring, both firms will remain partnerships, with all partners holding equity alongside H&F and Valeas in Baker Tilly Advisory Group.

Ferro says that thanks to the transaction, Baker Tilly will be in “an even stronger position to grow and invest in our business to create new opportunities”.

The partnership business model is under pressure to change as accountancy firms struggle to invest and attract new recruits, and often thousands of partners can hold up decision-making. PE firms have increasingly been investing in the professional services sector, with some accountancy firms agreeing PE investment and retaining the traditional partnership model as well.

However, ICAEW CEO Michael Izza says that the growing tide of PE investment into accountancy firms doesn’t yet mark the end of the partnership model.

“It’s far too soon to read the rites on the traditional partnership model, but the growing presence of private equity in the sector – both in the UK and the US – is a very significant development. It comes at a time when many firms are looking to make once-in-a-generation investments in new technology and new specialties, so the attraction of substantial capital injection is understandable,” Izza says.

Consolidation among smaller firms has begun to attract higher levels of PE investment, but so far in the UK there has been no shift away from the partnership structure among the largest firms.

In recent years, the UK has seen outside investment in Azets Group, formed by a PE investor Hg six years ago in response to the growing digitalisation of financial compliance processes for SMEs.

Top 10 firm Moore Kingston Smith (MKS) became the first accountancy firm in the UK to win PE investment and retain its partnership structure. Last year, top 20 firm Cooper Parry received investment from Dutch private equity group Waterland, but didn’t retain its partnership structure.

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