Professional services firms
Private equity has been rewiring the professional services industry over the last few years, and with the sector undergoing enormous disruption from AI, stagnant growth, and a highly competitive market, PE investment is increasingly becoming a lifeline for firms to stay afloat.
According to Jacob Silverman, chief executive of advisory and consultancy firm Kroll, private equity is key in driving the future of the professional services, and is “becoming a key source of capital” for the whole industry, with accountancy firms leading the trend.
Silverman told City PM that a private equity partnership may be the answer for firms’ continued growth in an increasingly volatile market.
“If your eyes are wide open about what matters to you as a firm, partnering with a private equity sponsor that has a similar mindset, values, and growth agendas, it can be a very, very positive combination, and it has been already for many firms,” Silverman said.
Kroll has been backed by private equity itself since 1989, and in 2020, two private equity powerhouses – Stone Point Capital and Further Global – partnered to acquire the firm for $4.2bn (around £3.12bn).
Historically, firms across consulting, accounting, and law, have operated under a traditional partnership model and relied on steady and predictable growth.
Private equity investment is pulling firms away from the traditional partnership structures, where profits are withdrawn by partners annually, towards highly scalable corporate models offering staff attractive equity stakes.
“Private equity can help drive these businesses forward, and I’m a proponent of it. You have to be – if you’re a partner of a professional services firm – you have to understand that bringing in a third-party source of capital will change things,” Silverman added.
Professional services giant Grant Thornton in 2024 voted in favour of an investment from private equity firm Cinven, a move which saw it generate double digit revenue in 12 months not long after receiving regulatory approval for the investment.
Silverman said it is “no surprise that private equity is becoming a key source of capital” for the professional services industry broadly, especially as “private equity and private capital continues to grow and be more connected to the overall economy.”
As the private equity market continues to seep across the professional services sector, an opportunity for advisory firms, including Kroll, to benefit is growing too.
As economic conditions evolve, Silverman said the biggest growth opportunity for Kroll lies in the private markets – specifically private equity and private credit.
Silverman said both are “two broad market trends that are driving our franchise forward, and have years, decades probably, of secular opportunity ahead.”
He added that as retailer investors around the world increasingly have access to this private equity, which he said “were up until recently only in the province of institutional investors”, the market value is growing, and the need for firms requiring support is too, but doesn’t come without risk.
“The ability to fairly value and support the ecosystem of that rapidly growing private capital market is a gigantic opportunity that’s also fraught with risk,” Silverman said.