As private equity (PE) continues to reshape industries, valuation firms are increasingly exploring whether partnering with PE is the right exit strategy or growth accelerator for their practice. For owners of valuation firms, selling to a PE firm offers an attractive opportunity to unlock capital, drive strategic expansion, and access resources that might otherwise be unavailable. However, it’s essential to carefully weigh both the benefits and potential downsides to determine if this path aligns with the long-term vision for the firm and its culture.
Why Private Equity is Attractive for Valuation Firms
For valuation firms looking to scale quickly, PE can provide the resources needed to enhance service offerings, upgrade technology, and attract top talent. Allan Koltin of Koltin Consulting Group points out that PE firms are generally attracted to high-performing firms with strong leadership, profitability, and growth potential. PE backing can enable valuation firms to expand their service capabilities beyond traditional valuation work, potentially moving into consulting, transaction advisory, or even litigation support services. This investment can be transformative, allowing firms to compete in new markets or add niche services that increase their value proposition.
Another major advantage is the financial upside. Through PE deals, firm owners may receive an upfront cash payment alongside equity in a new entity, offering potential for future gains if the firm grows under PE ownership. Many PE investors project that their initial investment in valuation firms could multiply over a five-year horizon, which is appealing for partners seeking a lucrative exit while still benefiting from future growth.
Challenges and Considerations with Private Equity
Despite the appeal, PE ownership is not without its challenges. One of the primary considerations is cultural fit. In a PE-backed environment, there may be increased focus on financial metrics and tighter controls over budgets, which can be a shift for firms used to the autonomy and flexibility of a partnership structure. “There’s more discipline,” notes Koltin, emphasizing that accountability is a core expectation. PE firms typically expect their portfolio companies to operate with efficiency, which can mean enhanced scrutiny on operational and financial decisions.
Additionally, due diligence by PE firms is exhaustive. Valuation firms must be prepared for a rigorous review of their financials, client portfolios, and growth projections, with PE investors carefully evaluating whether projected returns align with their investment goals. For firms that lack strong profit margins or operational consistency, a PE deal may not be viable. Koltin explains that PE firms are looking for firms that are already high-performing and profitable; underperforming firms may find it harder to attract PE interest.
Impact on Leadership and Daily Operations
For senior leadership, a PE acquisition introduces new layers of accountability and oversight, with frequent performance check-ins and goal-tracking mechanisms that may be unfamiliar to partners used to running the firm autonomously. While line partners may experience minimal change in their day-to-day roles, senior leaders will likely find themselves working closely with PE stakeholders, adjusting to the PE firm’s management style, and meeting rigorous growth and profitability targets.
For example, a PE firm might bring in experts to streamline operations, implement cutting-edge technology, or adopt new client service protocols. While these changes can enhance efficiency and profitability, they may also alter the firm’s culture and daily workflows. As Koltin emphasizes, PE firms are “resource enablers” that provide the capital and strategic support needed to fuel growth, but this comes with an expectation that the firm will achieve measurable results.
Ensuring the Right Fit for Your Firm
Before moving forward with PE, valuation firm owners should carefully evaluate three main factors: cultural alignment, strategic fit, and financial goals. PE firms that align culturally with a valuation firm are more likely to foster a productive, collaborative relationship. Similarly, the strategic fit is crucial—PE investment should open new avenues for growth that complement the firm’s existing strengths, whether through expanding services, enhancing technology, or attracting new talent.
Finally, valuation firms should assess the financial upside against their expectations and long-term plans. Owners need to be clear on their own financial goals and understand the potential value of rollover equity, which represents a significant part of many PE deals. As Koltin describes, a well-aligned PE partnership has the potential to turn “one plus one into eleven,” but only if both sides are strategically positioned to benefit.
Conclusion: Is Private Equity Right for Your Firm?
Private equity offers an enticing pathway for valuation firm owners looking for growth, liquidity, and a structured plan for future success. However, it’s not a one-size-fits-all solution. For those considering this route, it’s essential to weigh both the opportunities and challenges PE brings, from enhanced resources and growth potential to new accountability measures and cultural shifts. Ultimately, firms that align with the goals and expectations of PE investors stand to benefit significantly, but only if the partnership is founded on shared objectives and a compatible vision for the future.
For those valuation professionals interested in learning more about PE involvement in the industry, the upcoming PE Summit on November 20–21 in Chicago will bring together PE firms, accounting professionals, and valuation experts to discuss these evolving opportunities. As private equity reshapes the valuation landscape, understanding the full scope of this trend will be essential for firm leaders navigating the future.
