Talent and technology needs drive accounting firm restructuring

Michael Bernard assesses accounting firms’ changing ownership structures.

Women colleagues looking at computer and papers

We’ve been writing about the talent crunch affecting accounting firms and tax groups for a while now –for good reason. Talent attraction and retention challenges pose strategic risks to accounting firms and corporate tax departments. 

Now, the CPA talent shortage has attracted the attention of private equity firms, some of which are taking ownership stakes in mid-sized to large accounting firms (those outside the Big 4). These ownership changes may have impacts on the indirect tax services that the consulting arms of accounting firms provide to corporate tax departments.

In March, Grant Thornton announced that New Mountain Capital, LLC, would make “a significant growth investment to accelerate Grant Thornton’s business strategy.” That follows a February announcement by Baker Tilly US LLP of a strategic investment from private equity firms Hellman & Friedman and Valeas Capital Partners. The Journal of Accountancy’s coverage of the Grant Thornton announcement describes the deal as part of a private-equity investment trend that began a couple of years ago and includes private equity investments in Cherry Bekaert LLP and EisnerAmper LLP. 

In addition to private-equity ownership, accounting firms are considering IPOs, new equity models and other “overhauls” to address their growing capital needs (e.g., technology investments) and resourcing challenges. “Attracting talent is a real issue for everybody in this category,” Daniel Goelzer, the former acting chairman of the Public Company Accounting Oversight Board (PCAOB) told the Wall Street Journal a few weeks ago. “Other kinds of compensation models or equity models might become necessary in order to attract talent. The need to invest in technologies is only going to increase and that takes money.” 

As buyers of tax consulting services and other offerings from accounting firms, tax leaders should recognize that these private equity investments and related structural changes could affect those offerings in the future. These impacts, if they occur, could be beneficial or pose challenges. So, it makes sense for tax leaders to monitor the following areas: 

  • New offerings and technologies: Infusions of capital from private equity firms may enable accounting firms to enhance their service and technology offerings.
  • New expertise: The same holds for recruiting, retention and training activities. Some firms may hire additional tax experts with specialized expertise in, say, transfer pricing, tax technology implementations, robotic process automation (RPA) or artificial intelligence (AI). If a firm uses its newly acquired capital to pursue growth through M&A activity, it may also gain access to more varied tax consulting expertise.
  • Pricing changes: Growth and expansion plans may lead to more competitive fees to help retain existing clients and attract new customers. Alternatively, fees could rise as firms intensify their focus on profitability and a potential future liquidity event.

The talent crunch and private equity investments in accounting firms are reshaping the landscape of tax consulting services. Again, none of these changes (or others) are guaranteed to occur, but they are in play as accounting firms seek to address tax and technology needs that tax groups also confront.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.