What Kind of Accounting Firms Do Private Equity Firms Want to Buy—And What Influences the Price?

The accounting profession is undergoing a quiet transformation as private equity firms increasingly target CPA practices for acquisition. With an eye toward consolidation, efficiency, and scale, PE investors are reshaping how firms operate and grow. But not every firm is a candidate for acquisition. So, what kind of accounting firms are private equity firms looking to buy—and what determines how much they’re willing to pay?

Characteristics of Accounting Firms That Attract Private Equity

Private equity firms aren’t looking to buy just any accounting practice. They typically look for firms with certain key characteristics that make them attractive for investment and eventual exit. These include:

1. Recurring Revenue Streams

Firms with a high percentage of recurring revenue—especially from services like tax compliance, bookkeeping, advisory and client retainers—are more appealing. This predictability reduces investment risk and supports stable cash flow.

2. Scalable Niches

Specialization is a major selling point. Firms that dominate a niche—such as dental practices, veterinary practices, or property management (real estate) —often have deep client relationships, pricing power, and branding advantages that make them more scalable.

3. Strong EBITDA Margins

Private equity buyers are particularly focused on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). A firm with healthy profit margins (typically 40% or higher) is far more appealing than one struggling with operational efficiency.

4. Modernized Operations

Firms that have already embraced cloud-based tools, automation, remote staff, and client portals stand out. These elements reduce operational costs and make post-acquisition scaling smoother.

5. Leadership and Succession Plans

PE buyers often want firm owners to stay on board for a few years post-acquisition to help integrate operations and retain clients. 

6. Growth Potential

Whether through geographic expansion, cross-selling opportunities, or bolt-on acquisitions, PE firms want to know that the business can grow post-investment. Firms with proven marketing programs and high rates of growth (over 20%) command a premium.  Low growth rates practices are discounted.  

What Influences the Valuation?

Private equity doesn’t use a one-size-fits-all formula to value accounting firms. However, several consistent factors influence the price tag:

1. EBITDA Multiple

The most common valuation method involves applying a multiple to EBITDA. That multiple might range from 4x to 8x, depending on factors like growth rate, size, type of practice, and market conditions.

2. Client Retention Rates

High client retention over multiple years indicates stable revenue and strong client relationships—key for sustaining cash flow post-acquisition.

3. Staff and Culture

A low turnover rate among qualified staff and a culture of collaboration or innovation can boost value. Firms overly reliant on one or two partners may face valuation discounts.

4. Geographic Footprint

Location matters. Firms in major metropolitan areas or high growth suburban markets tend to fetch higher multiples due to better talent access and client density.  

5. Revenue Diversity

A firm that offers multiple services (tax, advisory, wealth management) has cross-selling potential and is generally less vulnerable to market changes—making it more valuable.

Conclusion

Private equity firms are injecting capital, strategy, and scale into the accounting profession, but they're selective about what they buy. For accounting firms looking to become acquisition targets, investing in recurring revenue, niche expertise, operational efficiency, and leadership development can significantly increase their appeal—and their price tag. As the market continues to consolidate, understanding what buyers want is the first step in positioning a firm for future success.

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