Eide Bailly to Sell Stake to Reverence Capital in $1.8 Billion Deal

Minneapolis-based accounting and advisory firm Eide Bailly announced it has reached an agreement to sell a majority stake to the private equity firm Reverence Capital Partners. The deal, confirmed in late June, values Eide Bailly at approximately $1.8 billion and marks one of the most significant private equity investments in the U.S. accounting sector to date.

The transaction injects a substantial amount of capital into Eide Bailly, a top-25 U.S. firm, and signals an acceleration of a trend that is reshaping the ownership structure and competitive dynamics of the professional services industry. This deal is not just inside baseball for the accounting world; it has direct implications for the small and mid-sized businesses that rely on these firms for critical financial services.

Eide Bailly, which employs over 3,300 people across 45 offices, provides core tax and audit services as well as a range of consulting specialties. Reverence Capital is a New York-based firm specializing in the financial services sector, making the accounting industry a logical target for its investment thesis. The capital infusion is expected to help Eide Bailly accelerate its growth, invest in new technology, and expand its advisory services to better compete with larger rivals.

The deal follows a now-established playbook for private equity investments in the accounting profession. Due to regulations in most states requiring certified public accounting (CPA) firms to be majority-owned by licensed CPAs, these transactions typically utilize an alternative practice structure (APS). Under this model, the private equity firm invests in a new entity that houses the firm’s non-attest services, such as consulting, tax advisory, and wealth management. The regulated audit and attest business remains in a separate entity owned and controlled by the firm’s CPA partners.

This structure allows firms to access private capital for growth without violating accountancy laws. The trend gained significant momentum in recent years with several high-profile deals. In 2021, TowerBrook Capital Partners invested in EisnerAmper, and Hellman & Friedman took a stake in Baker Tilly. More recently, New Mountain Capital invested in Citrin Cooperman, and Lightyear Capital backed Schellman & Co. The Eide Bailly transaction stands out for its valuation, placing it among the largest such deals in the industry.

In our experience, when a professional services firm takes on private equity investment, the pressure to grow and hit financial targets intensifies. This can be a double-edged sword for clients. While it can drive innovation and expand service offerings, we've also seen it lead to a more transactional approach where smaller clients may feel overlooked as the firm chases larger, more lucrative engagements. This shift underscores the importance for business owners to maintain a strong relationship with an advisory partner focused squarely on their specific strategic needs, not just on meeting quarterly growth targets for outside investors.

Private equity firms are drawn to the accounting industry for its stable, recurring revenue streams, high client retention rates, and fragmented market ripe for consolidation. The capital they provide allows accounting firms to address several pressing challenges, including the high cost of technology upgrades in areas like artificial intelligence and data analytics, an intensifying war for talent that has driven up compensation, and the need for capital to fund their own acquisitions of smaller firms.

For the partners at firms like Eide Bailly, a private equity deal offers a way to monetize the equity they have built over their careers, providing a significant liquidity event that is often difficult to achieve under a traditional partnership model. It also provides a war chest for strategic initiatives that would be difficult to fund through partner capital contributions alone.

However, the influx of private equity raises questions about the future of the profession. Critics worry that the focus on maximizing investment returns could potentially conflict with the industry's public interest responsibilities, particularly in the audit space. There are also concerns that increased consolidation could reduce competition, leading to higher fees and fewer choices for small and mid-sized businesses seeking accounting and advisory services.

Ultimately, this trend highlights the increasing complexity of the financial services world and the importance of strategic capital planning. Business leaders need to be proactive in understanding how these market shifts affect not only their own operations but also the stability and focus of their key service providers. For guidance on mergers and acquisitions or capital raising strategy in this evolving environment, the team at C&S Finance Group LLC at csfinancegroup.com provides tailored advisory services to ensure clients are well-positioned for success.

Moving forward, the industry will be watching to see how Eide Bailly integrates its new capital partner and whether the deal spurs other large, independent firms to seek similar arrangements. Regulatory bodies, such as state boards of accountancy and the Public Company Accounting Oversight Board (PCAOB), may also increase their scrutiny of alternative practice structures as they become more prevalent among the nation's largest accounting firms.