Grant Thornton is now the biggest accounting firm to get private-equity backing

The firm’s Chicago-based U.S. unit closed the sale of a stake to a group led by to New Mountain Capital on Friday, following an agreement in March. Under the deal, the U.S. audit business will remain a partnership, while U.S. advisory, tax and other non-audit services will be part of Grant Thornton Advisors LLC, a newly created limited liability company.

The New Mountain-led group’s investment constitutes a 60% stake in Grant Thornton’s U.S. unit and centered on the non-audit business, people familiar with the matter said. But the new majority owners will also have a contractual relationship with the audit business through a management services agreement between the two entities, the people said.

The sale will allow the firm to grow through acquisitions and investments in tech and personnel, likely at a faster pace and with less risk than it otherwise would have, said Seth Siegel, Grant Thornton’s U.S. chief executive. The firm aspires to be a more attractive acquirer of companies as it looks to expand its share among middle-market corporate clients, typically ranging from $100 million to $10 billion in annual revenue, he said.

“For those who might be willing to or wanted to sell or merge their businesses into a bigger platform like Grant Thornton, we can now offer something a little more differentiated than the rest of our competitive set," Siegel said.

The sale is among several moves by accounting firms to revise their ownership structure as they face greater capital needs and difficulty recruiting enough skilled workers. Private-equity firms in recent years have stepped up their deals for accounting firms due to stable business models and profitable exits. 

But a sizable investment in a firm as large as Grant Thornton, which reported $7.5 billion in global revenue last year, is unusual. The deal follows Baker Tilly’s agreement in February to sell a stake to Hellman & Friedman and Valeas Capital Partners, and Citrin Cooperman’s sale of a majority stake in 2022 to New Mountain, which has about $50 billion in assets under management.

“We believe this transaction helps us cordon off a lot of those concerns about being able to make the turn towards the future with even more confidence than maybe we’ve displayed in the past," Siegel said.

Siegel declined to comment on several details about the sale, including the price and size of debt financing.

New Mountain sees several opportunities to further enable Grant Thornton’s workforce with technology investments and help the firm bring its services to more clients, Nikhil Devulapalli, a managing director at the private-equity firm, said in a statement. New Mountain typically holds investments for about five years.

The separation of audit and non-audit services through the deal allows the firm to comply with securities laws ​​prohibiting conflicts of interest that could impair the objectivity of the firms’ auditors, Siegel said. The partners in the new non-audit entity will have equity stakes, but won’t have voting power, Siegel said. He declined to provide more details on the structure.

The primary source of opposition to the deal was a group of retired U.S. partners who sought a bigger payout than the firm laid out. The firm has since reached agreeable terms with the retirees, Siegel said, declining to disclose the terms. “Everybody’s on board," he said. Lawyers for the retired partners declined to comment.

The firm is casting a broad net on potential acquisitions and wants to be bold, said Renato Zanichelli, the national managing partner of tax services, on a U.S. tax webcast last week.

Grant Thornton is also in preliminary discussions to gain New Mountain as a new client for certain tax services. “I have had the opportunity to meet with our new investor, New Mountain Capital, and we had just a great meeting around how we might be able to serve them in their capacity. They are served by the Big Four," Zanichelli said on the webcast. “We’re making strides."

Siegel said the firm views New Mountain as a partner, not a financial sponsor. “Of course, post-close, we’ll talk about opportunities for how we can work together," Siegel said. Some of New Mountain’s portfolio companies are clients of Grant Thornton.

With the deal, the firm is changing when the U.S. unit reports its financials. In 2025, Grant Thornton will switch to a fiscal year ending in December—like most companies—from one ending in May. The so-called stub period in between will run from June 1 to Dec. 31.

The sale closes just over a week after Grant Thornton laid off about 350 U.S. employees, or 3.5% of its workforce in the country, across advisory, audit and tax business lines and up to the level of managing director. The firm recently told U.S. employees it delayed the October start dates of some incoming associates until January 2025 due to its expectations for future demand.

Grant Thornton cited slowing demand for certain services as well as lower-than-expected attrition for the layoffs. Many firms in the industry have experienced low attrition after having boosted hiring to respond to pandemic-fueled changes in their corporate clients.

“The dynamic that’s really driving this particular action that seems to go deeper as far as head count is because frankly we have seen attrition levels drop significantly," Zanichelli said last week.

Grant Thornton isn’t anticipating any layoffs directly related to the New Mountain transaction, Siegel said.

“We’re not here just to whack costs, because we’re not in that position," Siegel said. “We’re here to build a long-term sustainably healthy business that can weather economic cycles. But even in those economic cycles, we have to make some tough decisions."