accounting influencers

gary shamis: the private equity hazards for young partners | accounting influencers

private equity in accounting could boost firm value, but at what personal cost?

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accounting influencers
with rob brown

in a deep dive into private equity’s involvement in accounting, gary shamis, ceo of winding river consulting, describes how investment firms see value in the sector’s steady cash flows and resilient recession history. “it’s not that accounting is recession-proof,” shamis states, “but its inherent stability during economic downturns is highly appealing to investors.” he adds that accounting firms with strong advisory practices that offer scalable revenue opportunities are particularly interesting to private equity.

the conversation takes a sobering turn as shamis highlights the ongoing talent shortage within the profession. with fewer accountants entering the field and a growing demand for regulatory and advisory services, shamis emphasizes that private equity deals won’t solve the critical issue of human capital shortage. “there’s just not enough talent in the pipeline,” he cautions.

shamis also explores the contrasting incentives between younger and older partners in private equity buyouts, noting, “senior partners see a lucrative exit with reduced tax liabilities, but younger partners are left questioning what their future looks like.” this generational divide creates tension, as senior partners favor quick exits while younger partners face an uncertain future in a private equity-controlled landscape. he draws parallels between the current wave of private equity interest and the consolidation era of the 1990s. firms like cbiz and american express attempted similar buyouts with mixed results, and shamis suggests today’s private equity investors must tread carefully. “are we smarter than we were 25 years ago? we’ll find out,” he remarks.

for accounting firms evaluating private equity partnerships, shamis advises careful consideration of long-term impacts, particularly for younger professionals. “leaders must be clear-eyed about the implications of private equity funding,” he says. as shamis observes, private equity brings resources but demands a focused return on investment that may impact firm culture and partner autonomy.

6 key takeaways:

  1. private equity firms are increasingly interested in accounting firms due to the industry’s reliable cash flow and recurring revenue model. shamis highlights that accounting firms, especially those with advisory services, offer pe firms an appealing investment that is resilient during economic downturns.
  2. private equity buyouts often create a divide between senior and younger partners. senior partners may be attracted to pe offers as they allow for a lucrative, immediate payout at a lower tax rate. in contrast, younger partners face an uncertain future, with pe firms prioritizing profitability and growth, sometimes at the expense of firm culture and career stability.
  3. while private equity is making waves in the industry, the larger issue for accounting firms is a shortage of skilled talent. without a sufficient talent pipeline, firms may struggle to meet growing client demands and regulatory requirements, posing a bigger threat to the industry than capital constraints.
  4. pe firms are particularly drawn to the recurring revenue and growth potential in accounting firms’ advisory practices. building and scaling an advisory practice can create additional revenue streams, which is essential for pe firms aiming to increase profitability in the short term.
  5. private equity firms typically operate on a three- to seven-year investment horizon, which can clash with the accounting profession’s longer-term, relationship-based growth strategies. while pe firms aim to enhance firm profitability quickly, organic growth in accounting often requires longer timelines than the typical pe investment allows.
  6. when private equity takes a majority stake, a firm’s management dynamics shift, and partners may lose some decision-making control. for some firms, this loss of autonomy and culture could outweigh the benefits of additional capital, making it essential for firm leaders to assess whether pe’s objectives align with their values.
  1. more about gary shamis
    shamis


    gary shamis assumed responsibility for his father’s accounting firm in 1981. over the thirty-five years that followed, he took revenues from $225,000 to approaching $100 million and employees from a dozen to 600. he built the nation’s 37th largest independent accounting and consulting firm, before combining ss&g, inc. with bdo usa, llp in 2014.

  2. today, as principal and ceo of winding river consulting, a business advisory services company, gary is a highly sought-after speaker, facilitator, and consultant. in its inaugural list of managing partner elite in accounting in 2012, accounting today identified shamis as one of only ten people recognized for qualities required of a person in a firm’s leadership role. he is the “very model of the modern managing partner, and this list is more or less unimaginable without him,” it stated, adding, “he invented, codified, or popularized most of the strategies and best practices that are now taken for granted.”

 

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