Private Equity Invests in PKF O’Connor Davies

• US-based PKF O’Connor Davies, with an annual revenue of over $380 Mn just scored a massive investment from Investcorp, according to a report from the Financial Times.
• Roughly 10 of the 30 largest accounting groups in the US are now under PE ownership.
• Here is what’s happening.

Which PE Firm is buying a majority stake in PKF O’Connor Davies?

Bahrain-based Investcorp

Headquartered in Bahrain, Investcorp is a leading global investment manager.

Founded in 1982, it specializes in alternative investments across six key sectors: private equity, real estate, absolute return investments, infrastructure, credit management, and strategic capital.

The firm currently has an AUM of $53 billion.

Canadian pension fund PSP Investments

They are one of Canada’s largest pension investment managers with $264.9 billion of net assets under management!

Steve Miller, Co-Head of North America Private Equity at Investcorp, expressed excitement about working with PSP Investments and PKFOD’s 200+ partners to build on the firm’s legacy of success.

PKF O’Connor Davies

• Firm Overview: PKF O’Connor Davies is a premier accounting, tax, and advisory practice serving domestic and international clients.
• Headquarters: New York, USA.
• Team Strength: Over 1,500 professionals and 200 partners.
• Annual Revenue: $380 million.
• Top Recognition: Ranked among the top 26 firms on Accounting Today’s 2024 “Top 100 Firms” list.
• Growth Status: Recognized as one of the fastest-growing firms in the United States.
• Service Excellence: Known for a streamlined approach and exceptional client service.

What’s driving this deal?

Why are professional service firms like PKF O’Connor Davies gaining attention? Because they offer a unique combination of:

• Steady revenue streams
• Growth potential
• Ability to reshape the industry’s landscape

Traditional Partnership Structure

Partnerships are common business structures where multiple people own and operate a business together.

In many partnerships, partners earn money based on their contributions and the overall success of the business.

However, getting significant payouts in partnerships often takes a long time, sometimes decades.

Rise of Equity Value

Due to a competitive job market and many experienced founders retiring, companies are looking for ways to attract and retain top talent.

One solution is to create an “equity value” for the company. This means assigning a monetary value to the company’s ownership.

By creating an equity value, companies can offer stock options or shares to employees as part of their compensation.

Benefits of Equity Value

Attracting Talent: Stock options can be a powerful tool to attract top talent, especially in competitive industries.

Rewarding Performance: Companies can reward high-performing employees with stock options or shares, aligning their interests with the company’s success.

Retention: Stock options can incentivize employees to stay with the company for longer periods, reducing turnover.

By investing in these companies, PE investors can help them grow, attract talent, and ultimately increase their overall value.

Also read: Private Equity money is pouring into US CPA Firms. Surge in offshoring to India?

How does PKF O’Connor Davies plan on utilizing the capital?

PKF O’Connor Davies focuses on staying competitive through acquisitions and technology investments.

Acquisitions

• Acquired JGS, a provider of accounting, auditing, employee benefits, litigation, and tax advisory services in Middletown.
• Other notable acquisitions include LB Goodman and GKG CPAs (per Tracxn).

Technology Investments:

• Plans to enhance its technology infrastructure with AI tools and digital software services.
• Embracing AI to stay ahead in the rapidly evolving accounting landscape.

Broader Goal: Moving beyond standard growth models to remain a formidable and innovative player in the market.

Future Operations

PKFOD will continue with its alternative practice structure:

• PKF O’Connor Davies LLP: Provides attest services as a licensed CPA firm
• PKF O’Connor Davies Advisory LLC: Offers tax and advisory services through its subsidiaries

Transaction Details

• Terms: Not disclosed
• Regulatory Status: Approved, with standard closing conditions pending

Advisors Involved

PKF O’Connor Davies:

• Financial Advisor: Capstone Partners
• Legal Advisor: Levenfeld Pearlstein

Investcorp: Legal Advisor: Gibson Dunn

PSP Investments:

• Legal Advisor: Weil, Gotshal & Manges
• Regulatory Counsel: McDermott Will & Emery

Also read: US CPA firms are looking at setting up satellite offices in India. There is a need for consulting firms!

List of other Private equity firms acquiring accounting firms

Investcorp’s move is part of a larger trend of private equity takeovers.

Almost 10 of the 30 largest accounting groups in the US are now under PE ownership.

Since 2021, private equity firms have been on a buying spree.

• Earlier this year, Baker Tilly sold a controlling stake to Hellman & Friedman
• Similarly, Grant Thornton’s US operations secured an investment from the private equity firm New Mountain Capital.

Wrapping up…

In the words of Allan Koltin, CEO of Koltin Consulting Group,

“PE and CPA Firms: A Booming Mutual Attraction. Everybody wants to get in on accounting. Private equity’s involvement in the last three years has been beyond imagination.”

Until recently, PE was largely uninterested in a staid accounting services sector that shunned private investment. Now each side sees an opportunity to partner with the other.

Accountants need cash to deploy AI, retain talent, and overhaul ageing partnerships. PE is drawn to the fragmented sector’s stable cash flow, loyal customer base, and rosy financial projections.”

(Source: Financial Times)