To Partner with a Traditional or PE backed Firm?
At Prosero Search, we specialise in appointing Partners across the UK. We have the privilege of working with some fantastic teams across the Big 4 and Top 10 to smaller consultancies and boutique firms where as a team we continue to enjoy the successfully placing Partners.
One of the key conversations we have found regularly this year has been around the differentiation between Traditional and PE backed models, and which one is right for that individual, which I go on to discuss below.
The Difference Between Being a Partner in a Traditional Accountancy Firm vs. a Private Equity-Backed (PE-Backed) Company
The UK accounting industry is experiencing more and more of a shift from traditional partnership models to more corporate structures, largely driven by private equity (PE) investments. Some traditional firms, owned and managed by Partners, have faced increasing limitations such as slow growth and challenges with Capital Investment. In contrast, PE-backed firms are emerging as a more attractive model due to their focus on rapid growth, technological advancement, and operational efficiency.
This momentum is transforming the landscape, especially among smaller accounting firms, which face pressures such as high operational costs, limited capital for innovation, and difficulties with succession planning. Private Equity investments have provided these firms with the financial backing needed for mergers and acquisitions, allowing them to pool resources, adopt new technologies, and expand their service offerings. Consolidation is becoming increasingly common, as smaller firms seek economies of scale and enhanced market presence.
Supporters of the wave of Private Equity interest say it provides capital to smaller firms to fuel growth that would not be possible under the traditional Partnership model.
However, not all firms are embracing PE. Larger firms often prefer to maintain their traditional Partnership structures to preserve their culture and client relationships.
Proponents of the traditional Partnership model champion the benefits of being able to manage the business for the long term as they are not answerable to external investors or stock market analysts. They also argue that PE investors often aim for high returns in a short period, which can create pressure for rapid growth and profitability. This shift can lead to increased stress and a focus on short-term financial results over long-term client relationships. Additionally, PE involvement may cause cultural clashes if the new strategic direction differs from the accounting firm's traditional approach.
Despite this, PE's influence is growing, especially among mid-tier firms, with some already securing PE funding or expressing interest in doing so in the near future. This changing dynamic is reshaping the accounting profession, creating both opportunities and challenges for firms as they navigate the evolving financial and operational landscape.
This debate is especially important for those exploring Partnership opportunities, as the differences in firm structures play a key role in aligning personal and professional goals.
Which Model is Right for your Partnership Career?
As the accounting and tax advisory industry evolves, professionals climbing the ladder to partner level are faced with different firm structures, each offering distinct career experiences and financial rewards. Two common models are the traditional accountancy firm and the Private Equity-backed (PE-backed) company. Both offer the coveted title of "Partner," but the expectations, risks, and rewards can vary significantly between these two environments.
Here we unpick some of the key characteristics and differences of each model at Partnership model and what each could mean for you and your Partner career.
Traditional Accountancy Firm Partner
In a traditional accountancy firm, Partners are often seen as long-term business leaders who share the firm’s profits, manage clients, and have a voice in the firm's strategic direction. These firms are usually structured as Partnerships or limited liability partnerships (LLPs), where ownership is divided among the equity partners.
Key Characteristics:
- Ownership and Profit-Sharing: Equity partners in traditional firms own a stake in the business and receive a portion of the profits based on their ownership percentage. In this model, Partners typically invest capital to buy into the firm.
- Long-Term Focus: Traditional firms are generally focused on stable, long-term growth rather than rapid scaling or exit strategies. This leads to steady, incremental profit increases over time.
- Firm Governance: Partners in traditional accountancy firms often have significant influence over decisions regarding firm strategy, operations, and culture. There is usually a democratic process in place where Partners vote on major issues.
- Client-Focused Growth: Success in traditional firms largely depends on client relationships, technical expertise, and gradually building a book of business. Partners are expected to develop client accounts and maintain long-standing relationships.
- Low External Pressure: As the firm is typically owned by the Partners themselves, there is less external pressure for short-term performance, allowing for a more conservative approach to growth.
PE-Backed Company Partner
In a Private Equity-backed company, the firm has been acquired or invested in by a Private Equity firm, often with the goal of scaling the business rapidly and exiting for a profit within a few years. In this scenario, the role of a Partner can look very different from that in a traditional firm.
Key Characteristics:
- Financial Focus: PE-backed companies are primarily driven by the Private Equity firm’s goals of maximizing return on investment (ROI). This often leads to a strong focus on aggressive growth, cost control, and efficiency improvements.
- Short-Term Strategy and Exit Plans: Private Equity firms typically look for an exit strategy within 3-7 years. This means the focus is often on rapid revenue growth, operational efficiency, and increasing the firm’s valuation. Partners are likely to be involved in preparing for a sale, merger, or IPO.
- Equity Incentives: Instead of being traditional equity partners, Partners in PE-backed firms may receive shares or equity options in the firm, with the potential for a large payout when the PE firm exits. However, this can come with a higher level of risk, as the value of their equity is dependent on the success of the exit strategy.
- External Pressure: Private Equity owners often exert considerable pressure on partners to hit growth targets and financial metrics. This can lead to a high-performance, high-stress environment with more frequent reporting and performance reviews.
- Corporate Structure: In PE-backed companies, governance is more centralized, and decision-making may be driven by the Private Equity investors rather than a partnership model. Partners in this setting have less control over the broader strategic direction of the firm compared to traditional firm partners.
- Risk and Reward: Partners in PE-backed companies may enjoy the potential for a significant financial upside in the short term if the company achieves a successful exit. However, there’s also the risk that if the company underperforms, their equity could lose value, or they could lose their role in a post-exit restructuring.
Key Differences
Aspect |
Traditional Accountancy Firm |
PE-Backed Company |
Ownership Structure |
Partners hold equity, share in profits |
Private Equity firm owns majority, partners may receive equity options |
Growth Strategy |
Steady, long-term growth |
Aggressive, short-term growth with exit strategy (e.g., sale or IPO) |
Decision-Making |
Democratic, Partner-driven |
Centralized, driven by PE firm’s objectives |
Risk and Reward |
Steady, consistent profit-sharing |
High-risk, high-reward based on firm’s performance and exit success |
Governance |
Partners have significant control |
PE firm has more control, Partners have less influence |
Financial Focus |
Client relationships, organic growth |
Financial metrics, rapid scaling, and operational efficiency |
Exit Strategy |
Typically, none—Partners retire or sell their shares within the firm |
Clear exit plan (sale, merger, or IPO) |
Which Path Is Right for You?
- Risk Appetite: If you prefer stability, long-term growth, and having significant control over the firm’s strategy, a traditional accountancy firm may be a better fit. On the other hand, if you’re drawn to the idea of fast-paced growth with the potential for a large financial payout, and you’re comfortable with higher risk, a PE-backed firm could be appealing.
- Control vs. Performance Pressure: Traditional firm Partners have more control over decision-making and the firm’s direction. In contrast, Partners in PE-backed companies may have less autonomy but are expected to drive performance aggressively.
- Financial Objectives: Traditional firms offer steady, reliable income through profit-sharing, whereas PE-backed firms offer the potential for significant financial upside—if the firm is successful in its exit strategy.
Ultimately, whether you choose the traditional accountancy firm path, or the PE-backed route depends on your personal and professional goals, your tolerance for risk, and the type of work environment you thrive in. Both offer exciting opportunities, but understanding the differences is crucial for making the right choice for your career.
Related Articles:
https://www.ft.com/content/200d78b8-c5fe-4238-9ee5-27c9e84a083d
https://www.thomsonreuters.com/en-us/posts/tax-and-accounting/private-equity-accounting-firms/