Private equity firms take stakes in accounting firms


Private equity firms are increasing their funding of accounting firms in a pair of deals announced this week, with Lightyear Capital partnering with Schellman & Co., and CVC Capital Partners investing in CFGI.

Lightyear said Friday that its affiliated investment funds have agreed to acquire assets from and partner with Schellman in forming a new technology and cybersecurity venture known as Schellman Compliance LLC. Going forward, Tampa-based Schellman, as a licensed CPA firm, will continue to provide attest services, while Schellman Compliance will provide non-attest services. Financial terms of the deal were not disclosed.

In the other deal, CFGI LLC, a Boston-based non-audit accounting advisory firm that specializes in providing consulting services to CFOs, said Wednesday that funds advised by CVC Capital Partners agreed to acquire a “significant interest,” valuing CFGI at approximately $1.85 billion. CFGI already had private equity involvement, since the Carlyle Group announced an investment in March 2018. Carlyle started as a private equity firm but went public in 2012.

The two deals are further signs of increasing interest by private equity investors in the accounting profession. Last month, EisnerAmper, a New York-based Top 20 Firm, announced it would be restructuring after TowerBrook Capital Partners bought a significant stake (see story). The EisnerAmper deal was structured similarly to the one announced Friday by Schellman, with EisnerAmper continuing to provide attest services, while a new entity, Eisner Advisory Group LLC, will offer business advisory and non-attest services. CPA firms like EisnerAmper generally will need to set up so-called “alternative practice structures” when they receive investment from private equity firms and publicly traded companies, and the AICPA Code of Professional Conduct requires them to follow certain rules of conduct and make specific business arrangements (see story).

The investments may also lead to changes in leadership. In the case of Schellman, the majority ownership interests of Schellman’s current CEO and founder, Chris Schellman, will be recapitalized, allowing him to exit the business six years prior to his previously announced 2027 retirement date. Schellman’s current president, Avani Desai, will become CEO, while all other members of Schellman’s senior leadership team will continue in their current roles.

Avani Desai

Lisa Presnail/Presnail Photograp

“Together with the Lightyear funds, we will continue to carry forward the vision Chris laid out to be the leading provider of compliance assessments with an unwavering attention to quality,” Desai said in a statement. “We have always been a firm that strives for more, and in Lightyear, we have found a new partner that is just as committed to innovation and value creation. This new phase for Schellman will allow us to take bold steps, and we are all tremendously excited about the possibilities.”
The founder is looking ahead to the future of his firm. “It gives me great pride to reflect on what our team has built at Schellman,” Schellman said in a statement. “We are truly the jewel of this industry thanks to our obsession with providing high quality services. I am eternally grateful to all of those that have trusted my leadership along this journey and look forward to what this partnership will mean for the next chapter of Schellman’s success.”

Schellman’s firm ranked 65th on Accounting Today’s 2021 list of the Top 100 Firms, with $77.36 million in revenue.

Lightyear Capital sees potential in the investment for expanding the firm’s cybersecurity and IT auditing services. “We are excited to invest alongside Avani Desai and the management team at Schellman working to support key organic and M&A growth opportunities,” said Lightyear managing partner Mark F. Vassallo in a statement. “The company is well-positioned in the market for cybersecurity and IT audits for continued growth.”

CFGI, in contrast, didn’t have to set up an alternative practice structure as it was already partly owned by an investment firm, Carlyle. In the latest deal with CVC Capital Partners, CFGI co-CEOs Nick Nardone and Shane Caiazzo, pointed out their firm doesn’t have to worry about auditor independence. “Our clients benefit from our national office expertise, without the hassle of auditor independence,” they said in a statement. “We are thrilled to be partnered with not one, but two of the world’s largest private equity firms as we continue into our next phase of growth.”

CFGI says it already has more than 2,500 clients and a team of over 650 professionals across 12 offices.

“We originally became aware of CFGI as a customer of their services and were quickly impressed with their capabilities and business model,” said Daniel Brand, senior managing director and U.S. co-head of business services at CVC, in a statement. “Their ability to bring national office expertise, both for transactional and operational support, is highly compelling and we believe CFGI is uniquely positioned to continue to capitalize on the underlying market trends that drive robust demand for their services.”

All existing shareholders are reinvesting in the transaction in partnership with CVC, including funds managed by Carlyle, co-CEOs Nardone and Caiazzo, and the partners of CFGI. Additional terms of the deal were not disclosed. The transaction is expected to close in the fourth quarter.

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