On January 7, 2025, New Mountain Capital (New Mountain, NMC), a private equity (PE) firm with stakes in several accounting firms, announced the sale of a significant minority stake of Citrin Cooperman (Citrin, CC) to Blackstone, the world’s largest “alternative asset manager.” For simplicity, we will be referring to Blackstone as a PE firm, although they have their fingers in a massive swath of assets beyond just private equity.
On its surface, this announcement seems like just another in a long list of accounting firms selling out to private equity. Don’t ignore it. This is a Big Deal.
To understand why this qualifies as a Big Deal, we need to review the background information:
- In October 2021, Citrin Cooperman sold a majority of its ownership shares to New Mountain Capital. At the time of the sale, Citrin earned roughly $350 million in annual revenues. The purchase price New Mountain paid implied that Citrin Cooperman—as a whole—was worth around $500 million.
- By 2024, Citrin Cooperman earned roughly $850 million in annual revenues, largely through bolt-on acquisitions mixed with some good ol’ fashioned natural growth.
- New Mountain Capital sold a 40-45% ownership stake of Citrin Cooperman to Blackstone, resulting in Citrin Cooperman being valued at roughly $2 billion.
The key points here are that 1. New Mountain Capital raised the value of Citrin Cooperman nearly 4x in three years, and 2. Blackstone believes there is still value to be earned from significant minority ownership in a public accounting firm that they purchased for 15x EBITDA.
Let’s unpack this from the perspectives of the various parties and the industry as a whole.
New Mountain Capital’s Perspective
Selling Citrin Cooperman for more than 4x what you paid for it is a win. Selling it for 4x what you paid for it in only three years is a monumental win. Doing that with a bigger, more well-known public accounting firm sitting in your back pocket in Grant Thornton (GT, GT US) is a pipedream come to life.
New Mountain Capital effectively used Citrin Cooperman as a prototype for what might be the most ambitious private equity scheme undertaken in the accounting industry. And if you’re New Mountain’s CEO, your gameplan so far appears to be:
- Acquire a large public accounting firm at a reasonable price by moving quickly and setting the market price.
- Boost your acquired firm’s growth by acquiring smaller bolt-on accounting and consulting firms, and encourage natural growth by improving technology and internal processes.
- Ensure your acquired firm’s financials remain strong and enticing for another investor.
- Purchase another, preferably larger, accounting firm using the lessons learned from the first purchase.
- Sell the first firm for a significant multiple of your purchase price, and focus your efforts and free cash on growing your second firm.
Their Grant Thornton acquisition includes several features that could make its eventual sale even more lucrative than the Citrin deal. First, GT is bigger and more recognized globally; this alone should increase the eventual sale price by a greater margin than Citrin’s. Second, GT has quietly begun merging its International (GTI) branches into the New Mountain ecosystem alongside GT US. While Citrin Cooperman relied on small domestic acquisitions to spur its growth, Grant Thornton can pick up massive practices in other countries.
Even better for New Mountain Capital, these international acquisitions are already loosely integrated. They won’t cannibalize other Grant Thornton branches’ business lines. Due diligence is easier since New Mountain is familiar with the GTI branches’ leadership. The GTI leaders are incentivized to accept merger offers because of how well-compensated the GT US partners were from the initial acquisition. And New Mountain can simply split the regulation-heavy audit practices from the tax and advisory practices in one stroke of the pen. The only real hurdle New Mountain Capital could encounter is stubborn GTI partners, (ask EY about herding those cats), but they can either be ignored or paid for acquiescence.
By steadily merging the GTI firms with the GT US business, New Mountain effectively transforms a mid-tier domestic accounting firm into a Big 4 clone, and then sells its mid-tier firm at Big 4 prices. When NMC eventually sells GT, it will be the largest deal ever undertaken in accounting history, and it will be accomplished in years instead of decades.
Other accounting and private equity firms are seeing this and salivating at the chance to replicate it for themselves. There’s just too much money to ignore PE’s siren song.
Blackstone
PE-to-PE deals are like a black box. Unless someone close to the proceedings decides to risk their career leaking contract details, we’ll never know the specifics of the latest Citrin Cooperman deal. We have the rough numbers, but without the context of an entire contract, it’s hard to say whether or not Blackstone got a deal on their investment. Right now, Blackstone probably values its options.
It reaps a similar first-mover advantage like New Mountain had when it bought Citrin Cooperman. By being the first “big fish” PE fund to purchase an accounting firm from another PE fund, Blackstone sets the market on secondary purchases. All future secondary deals for accounting firms will be compared against this one; that benefits the team that drafted the strategy and executed the deal first. Blackstone has practical experience their competitors don’t. And later on, if the Citrin deal works really well, Blackstone can go buy an aftermarket Grant Thornton from a reputable dealer.
Blackstone can also (probably) acquire more “shares” of Citrin Cooperman. If they like what they see after getting a good look at their investment, Blackstone may offer to purchase shares from existing Citrin Cooperman partners. We don’t know the details, but New Mountain may have additional shares they would be willing to part with. Blackstone has different avenues for increasing their investment stake if they wish.
Finally, Blackstone probably likes its chances of growing Citrin Cooperman further. They have a history of effective (if aggressive) management. They can trim more fat from their investment before it goes to market. Acquiring new firms to add to the Citrin ecosystem should be easier with the experience and capital Blackstone boasts. When it’s time to sell, Blackstone should feel confident that it will profit from the investment. Most likely they’ll reap the first-mover advantage again, this time from the selling side.
The Accounting Industry
The accounting industry as a whole should be thoroughly on alert now. The Citrin Cooperman deal indicates that the perceived values of all accounting firms may have been too low. Citrin Cooperman has now been purchased for 11x and 15x EBITDA, respectively. Again, the details on these deals are scant, but firms that sell out to private equity are able to capitalize on that locked up value. They can acquire smaller firms, set up a back-office in India or the Philippines, and grow faster than all of their competitors.
As the size of PE deals grow, so do the incentives for accounting partners to accept the offer when it’s presented. Partners can receive life-changing amounts of money right now* for selling a stake in their practice. If you’re nearing the end of your accounting career (which a substantial number of accounting partners are right now), you would be foolish to not at least listen to the offer. You could set up your kids and grandkids for life.
Some firms and partners will always hold out. And there’s some anecdotal evidence that these firms are perceived more favorably by their employees and their clients, but reliable data is limited. The ones that ignore private equity are comfortable with their current growth rate and business environment. They might be too small for the private equity analysts to target. They might prefer to target acquisitions in their region rather than be folded into a mishmash national conglomerate.
What the accounting industry is most concerned with (and excited about!) is the true price of private equity investment. Influential individuals stand to make themselves very wealthy, but will the firm’s offerings be commoditized and hinder future growth? Can we rely on audits produced by companies that share corporate leadership with their clients? If Citrin Cooperman was worth $500 million and now it’s $2 billion, then Grant Thornton, which was valued at around $2.0 billion should be worth $8.0 billion? Are all the accounting firms undervalued? How can my accounting firm capitalize on the benchmark deals? Is my firm’s board comfortable with us not growing as quickly as our competitors that take PE deals?
The dilemmas that keep us up at night.
The Acquired Firms
We can speculate on what the employees think after their accounting firm is acquired. Partners receiving significant buyouts are probably giddy. Directors and senior managers on the cusp of partnership are probably pissed. Everyone else is probably optimistically annoyed with all of the nuisance work that comes with an ownership change.
Rather than speculate, we’re going to offer the perspectives of several people who work for firms that have been acquired or merged. As we collect these stories, links will be included at the bottom of this article. These articles will make up the first of our “Embrace the Beige: Spotlights on Courage: Front Line Accountants” series.
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*After the deal closes, and the payments are processed, and the taxes are paid.