The accounting profession is experiencing a wave of mergers and acquisitions right now, which is forcing firm owners to make tough decisions about their futures.
In the latest episode of the “Who’s Really the BOSS” podcast, Doug Lewis, the Managing Director at Visionary Group, offered insider insights into accounting firm transactions, drawing from his extensive experience in the field.
Record-Breaking M&A Activity
In 2024, accounting firm transactions set new records, and it looks like 2025 might double those numbers. As Lewis explained:
“2024 was industry-wide across the accounting profession absolutely wild. The pure number volume of transactions that were happening…a lot of people don’t realize how many half-million to $5 million transactions take place almost weekly at this point.”
While big acquisitions by major firms and private equity groups grab headlines, most transactions involve smaller practices that often go unnoticed. This surge in activity is driven by two key factors:
- Demographic Reality: The average baby boomer is now in their late 60s, and this generation still owns most accounting practices. Many are discovering that their internal succession plans have either failed or didn’t exist in the first place.
- Growth Strategy Shift: Larger accounting firms have increasingly turned to acquisitions as their primary growth strategy. Once firms reach certain revenue levels, relying purely on organic growth simply isn’t enough.
“Once a firm reaches a certain revenue size, it’s extremely difficult to move the growth needle if you’re just focusing on organic growth,” Lewis noted. “The numbers can get staggering on how much new business you have to bring in.”
This creates what Lewis calls a “perfect storm” in the marketplace: Aging owners needing exit strategies are facing off against growth-hungry acquirers who see mergers and acquisitions as their best route to expansion.
Who’s Buying Accounting Firms?
The landscape of potential buyers for accounting firms has changed a lot in recent years. Lewis pointed out three main types of buyers:
- Independent Accounting Firms: These firms continue to acquire practices, often opting for equity swaps rather than cash transactions. In many cases, these deals are structured as “mergers,” where the selling partner rolls into the compensation program of the acquiring firm.
- Outside Investors: This group includes private equity firms, outsourcing companies, technology firms, and wealth managers who are increasingly getting involved in the accounting space.
- Hybrid Firms: These are firms that have already taken on partial or majority private equity investment and are becoming more active in making acquisitions, typically using different transaction structures.
Despite these categories, Lewis emphasizes, “I’ve been a part of hundreds of these things over the years, and I have yet to see two transactions that were ever structured in the exact same format.”
How Firm Valuations Are Changing
It seems like the marketplace is really shifting from revenue-based valuations to EBITDA-based approaches, which align more closely with how other industries operate.
“The overwhelming majority of acquirers are shifting from the multiple of gross revenue down to the multiple of EBITDA, which makes sense because that’s how the majority of other businesses trade,” Lewis explained.
Even with this change, gross revenue multiples still serve as a useful reference point. Lewis noted, “Usually the multiple of gross revenue is always going to hover around that one time mark. Some are significantly higher if it’s a niche profitable practice and some are significantly lower.”
A key consideration in this process is how EBITDA is calculated—especially when it comes to owner compensation. Lewis states, “When we look at EBITDA, the true profitability on a firm, we look at it before any single owner in that company takes home a dime. That’s the starting point.”
This can often lead to tension during negotiations since sellers typically view their compensation as separate from the firm’s profitability, whereas buyers see owner compensation as a cost that needs to be factored in.
Another concept that Lewis brings up is what he calls the “scrape”—essentially the return on investment that buyers require. As Marcus puts it: “If the scrape on a transaction’s 10%, 20%, you have to evaluate this business purchase up against anything else in the market, including just going and sitting that cash in an interest-bearing account.”
Building Value in Your Accounting Firm
If you’re looking to sell your firm or transition ownership, there are some proven strategies that can really boost its value. Lewis identified four key areas to focus on:
1. Develop Your Talent
One of the biggest draws for potential buyers is the talent within your firm. While having younger partners can be a real advantage, Lewis stressed that having strong management at all levels is crucial:
“Young partnership talent is phenomenal to have. But if you have strong managers, that next level director manager level people inside your firm, that’s going to significantly help valuation.”
2. Optimize Your Client Portfolio
Many accounting firms struggle with revenue concentration that goes beyond the classic 80/20 rule:
“It’s not uncommon for us to see more of like a 90/10, 95/5 rule inside accounting firms,” Lewis pointed out.
This means that only a handful of client relationships are driving most of the firm’s value. Lewis shared an eye-opening example: when he asked a seller about their top ten clients, they could only name about five or six and realized they didn’t really know what those clients were trying to accomplish.
Rachel highlighted her own experience: “We were spending a lot of time with very low revenue clients, like multiple touch points on these that spent the least amount with our firm. And it didn’t make any sense.”
3. Review Fee Structures
One of the most effective strategies for increasing your firm’s value is to conduct thorough pricing reviews:
“I’ve yet to really see a firm that has priced themselves out of any market, which is shocking,” Lewis noted.
Despite this insight, many firms hold on to outdated pricing structures that undervalue their services. Lewis recommends that firms “aggressively review your fee structures” and set minimum fee thresholds to get rid of unprofitable client relationships.
4. Highlight Advisory Opportunities
While it may not be realistic for everyone to build strong advisory practices—especially those nearing a transition—Lewis suggests a different route:
“If a firm is a little late in the game to really jump start an advisory department, what they should do is be able to clearly state and identify the advisory revenue opportunities that exist inside their base to a potential buyer.”
Clearly communicating these untapped potential opportunities to potential buyers can significantly boost your firm’s perceived value.
Common Misconceptions When Selling
For firms working on a sale or merger, Lewis says there are two big misconceptions that tend to derail transitions:
- Unrealistic valuation expectations often stem from anecdotal information about what other firms received. “When you hear, ‘oh, this firm got a multiple of this’ or ‘private equity wants this in a firm’—yeah, they do, but they want one in a firm that’s 20 times your size,” Lewis explained.
- Underestimating transition timelines is another common pitfall. “There are a lot of aging owners out there right now who think that when I’m ready to hang it up, I can just list the thing, sell it, and walk away,” Lewis noted. “Those types of transactions where there is not a relatively extended transition period post-deal—those are becoming less and less commonplace in the market.”
Every Firm Will Face Transition
Lewis’s view is simple: transition is inevitable for every accounting practice.
“Every single firm transacts now. There’s really only three transactions out there. Number one is you’re going to either sell or merge the thing. Number two is you’re going to pull off the internal succession. And number three is you’re going to close your doors.”
This reality completely changes how we should think about firm value. Building value isn’t just something you do when you’re getting ready to sell – these core business principles improve outcomes no matter which path you take.
As Rachel put it: “We need to be doing these things as well if we’re hoping one day that one of our current team members or a future team member is going to want to buy or continue the legacy of our current firms. We need to make them attractive to the people who are working in them as well.”
In today’s red-hot market for accounting firm deals, the winners will be those firms that consistently build value through disciplined business practices instead of waiting until they’re about to transition.
Want to hear more from Doug Lewis? Listen to the episode, and don’t forget to subscribe to “Who’s Really the BOSS” for more insights on building a valuable accounting firm.
Rachel and Marcus Dillon, CPA, own a Texas-based, remote client accounting and advisory services firm, Dillon Business Advisors, with a team of 15 professionals. Their latest organization, Collective by DBA, supports and guides accounting firm owners and leaders with firm resources, education, and operational strategy through community, groups, and one-on-one advisory.