Private equity’s (PE) expanding role within the accountancy industry is generating a heightened need for legal services, with firms like Hill Dickinson strategically positioning to take advantage of the active market, the legal giant says. Hill Dickinson partner Sean Lightfoot said: "It started for us about three years ago when private equity firms ventured in for the first time".
He detailed how initial investments by Exponent in Xeinadin, Tenzing in DJH Mitten Clarke, and Waterland in Cooper Parry marked "a seminal year in terms of PE getting various platforms in this space to kind of push on from there".
Liverpool-based º£½ÇÊÓƵ law giant Hill Dickinson seized the opportunity presented by the PE-involved deals, with Lightfoot noting that their involvement in the Exponent/Xeinadin deal established "a good platform" for the firm to delve further into this niche. "From our side, that relationship has bolstered our creds in the accountancy sector, so we have expanded to act on the sell side of accountancy practices," he stated.
The intrigue of PE firms in the accountancy realm arises despite inherent challenges such as regulatory red tape due to audits. Lightfoot, , pointed out that "audit work is particularly risky", detailing a trend where "what you’ve seen in the accountancy spaces, particularly in the Big Four, they are offloading audit clients."
He elucidated that "what happened is that [work] trickles down the line to some of the small firms who are now picking up this work which they might not have got five/10 years ago".
"There is risk attached to that work but the flip side of this [the work] is recurring in nature and PE like recurring revenue streams," he added, as reported by .
The trend for private equity (PE) involvement in the accountancy sector shows no signs of abating, with a notable uptick in activity within the upper mid-level market. Just last week, Apax Partners made headlines by acquiring Evelyn Partners' accounting division for £700m.
Additionally, over the summer, it was reported that Grant Thornton's º£½ÇÊÓƵ branch was contemplating selling a stake to PE. As PE continues its foray into accountancy practices, Lightfoot observed "it will be an interesting year in the next year or two given PE has been in [these firms] for the last three to four years".
He highlighted that PE firms might begin to look at exit strategies soon for those investments initiated back in 2022, which sparked the current trend.
The interest of PE is not confined to accountancy as law firms are also on their radar.
Last year saw Inflexion take legal firm DWF private in a £342m deal. Lightfoot remarked that law firms are traditionally "quite conservative" and slow to embrace change, but he pointed out that "similar with the accounting market, once it happens, there’s kind of a rush for everyone to do the same thing".
Lightfoot suggests that private equity (PE) firms will likely be on the lookout for specialist legal entities, such as intellectual property lawyers, due to their "recurring income stream", a feature that PE firms appreciate. For Hill Dickinson, Lightfoot asserts that the firm has "very good credentials compared to other firms" in the professional services market.
As work continues to flow, the firm aims to leverage its credentials. "We still very much position ourselves as having the expertise to not only act on the institutional PE investors side, but also acting on the owner manager side, because we’ve got significant experience on both from the last 10 years," he added.
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