Have accountancy valuations hit their peak?
With M&A still booming, the accountancy market is questioning whether this is as good as it gets.
“We were looking to sell in three to five years, but was the opportunity still going to be there? We decided that this is probably the peak of the market. If anything, it’s going to slow down…”
That was the view of a managing partner at a mid-tier firm I spoke to recently. They asked to remain anonymous because the deal is not yet public, but the sentiment remains. In the end, they rolled the dice, concluded valuations were unlikely to beat last year’s highs, and took the offer. They are far from alone in mulling over this decision.
Most managing partners have had that call from a private equity house. The ones I’ve spoken to certainly have — in some cases, it’s a weekly occurrence. And there are only so many times you can bat away an approach before you start to wonder whether this really is the peak.
So will those that took the plunge regret their decision as valuations continue to rise, or are things going to slow down from here?
How long will peak valuations last?
If you listen to James Gosling, the managing director at AJ Chambers, there is no time like the present to shake hands on a deal. “Valuations definitely peaked last year,” said Gosling, who noted that 2025 had the most transactions in the accountancy space for some years.
“It had been building, but last year was really the point where many of the dynamics driving the M&A activity were really emphasised,” he said.
To say practices have had their hands full would be putting it mildly. The pressures behind the decision to sell range from the lack of a succession plan and difficulties attracting and retaining talent to regulatory burdens and the growing challenge of keeping pace with technology – a problem that has only intensified for some with the sudden rise of artificial intelligence.
These challenges are as common in an accountancy office as Teams calls, naff self-help leadership books or bitter coffee. The only difference this time is the tidal wave of private equity investment sloshing onto accountancy’s shores. The first big player in the accountancy space, really, was Cogital-backed Baldwins (now known as Azets) almost a decade ago. Since then, the likes of Xeinadin, Sumer, Cooper Parry, Gravita and even Grant Thornton have deepened their pockets with PE-investment.
Gosling also attributed last year’s heightened activity to a sense of herd mentality. “A lot of people, maybe on the fence about whether they should sell or not, were seeing their competitors or people around them being bought or merging with another independent firm,” said Gosling. “The momentum had been building, and last year we saw people say, now’s the time to move.”
The question is how long that peak will sustain. Another managing partner I spoke to this week said the peak could last anywhere from one year to five years. Regardless, after a busy 2025, the momentum is expected to continue this year anyway.
“It’s going to be relatively high because there are a lot of ongoing conversations that have dragged from 2025 into 2026,” said Gosling.
The MTD elephant in the room
Private equity-backed investment may have attracted the most headlines as the shiny new toy in the market, with huge names merging and new players surging up the accounting league table, but a lot of movement this year is expected in the independent space – especially with firms under the £1m mark.
Much of that can be attributed to the starting pistol firing on the government’s long-gestated Making Tax Digital project. Sole practitioners have done a lot of soul searching since MTD was first announced. As the April start date for the first tranche of taxpayers draws closer, sole practitioners are looking to make MTD someone else’s problem. For independent firms, this creates an opportunity.
“This market is going to come alive this year,” said Gosling. “We’re going to see a lot of solid independent firms start acquiring sole practitioners and local firms that they’ve not had conversations with before.”
In fact, these conversations are already happening. At the start of last year, Mazuma was one of the most high-profile firms to see this as a massive growth opportunity. “Lots of these firms have had their exit denied to them… ” Lucy Cohen, the founder of Mazuma, told me last year, acknowledging that the £200k to £700k firms might not be massive but they have a “solid and sticky client base”.
Fresh off securing private equity investment from Nordic-based VIEW, Cottons is another mid-tier firm that is spearheading an M&A strategy built around acquiring small and sole practitioners.
“We are keen to grow, build, and find those smaller firms who we can really empathise with, who have the same type of clients that we work with, and we can help build and then retire when they want to,” Will Smart, the managing partner at Cottons, told me this week. Smart was keen to point out that he’s been a sole practitioner two times before. “I understand what keeps them up at night.”
You can see why valuations might be peaking for this cohort as finally MTD takes centre stage. As MTD lowers the income threshold to £20,000 from 2028, the window of opportunity to sell is now.
However, attention could be turning elsewhere. Naturally, this will impact the multiples.
Big year for large firms
The question in the year ahead is at which point will the lion’s share of private equity-backed firms move their focus and attention away from the smaller sub-£4m firms and start turning their attention to the other consolidators and larger players in the market? That’s the next battlefield.
“I have no doubt there will be a consolidator acquiring other consolidators in the market,” predicted Gosling. This moment will come to a head as some private equity firms reach the point of being flipped and start looking for either another private equity sponsor or a sale to another firm.”
Gosling is aware of a couple of conversations that are already happening on this front.
“Whether or not the deals would actually happen this year or not, that’s another matter, especially since we’re talking about large firms here,” he said. “It might take a little longer, but I certainly feel there might be one this year.”
We’ll have to wait and see. Perhaps they may go another cycle before being acquired by a consolidator. They may even roll the dice on the valuations seeing as big US private equity firms have landed on these shores and are engaged in active conversations with the consolidators. Let’s not forget, US-based Lee Equity announced a majority investment in Cooper Parry in December 2024.
Peak in valuations
In short, a lot is happening in M&A. But let’s talk about the numbers. Will this activity push the valuations any higher?
“I can’t see valuations for sub-£1m and up to £8m firms moving too much [higher],” said Gosling. “We’ve had the first couple of flips now and the multiples are up around the 14x to 15x mark for private equity.
“I think those [multiples] are going to stay around for the course of the year. It will be interesting to see when the focus from the private equity firms move further up the chain and if that will naturally mean the peak we’re seeing and the supply and demand at the smaller end of the market – the £1m – £6m firms as well as sub-£1m firms – will mean valuations will start to come down,” explained Gosling.
It’s eye opening seeing how high valuations have scaled. “It was only two to three years ago that a £2m – £3m firm was getting around 5x EBITDA mark – now firms are looking at multiples much higher than that,” said Gosling.
The shift in strategy for private equity firms and the focus on the higher echelons of the market will influence those multiples for the smaller end. “As a result, we may well start to see multiples reducing or settling down,” Gosling concluded.
Roll the dice or not
The figures speak for themselves. When presented with valuations like that, it’s no wonder firms like the anonymous partner decided to roll the dice.
Every senior leader I speak with keeps a close eye on the market. They’re aware of the numbers. An offer will come that’s irresistible to the partners and they’ll go with their gut.
But sometimes it isn’t the money that seals the deal. The model being offered can matter just as much, and no two are ever quite the same.
“A good number run a typical model, but there are always nuances,” said Gosling. “A structure could be 100% buyout, but you could have people who are selling but are remaining in the business for the mid to long term. They could roll their equity into group level, which is a standard buy and build structure that a lot of private equity houses have.
“Within that are other considerations, like how they engage with clients, how they engage with staffing and whether there are growth shares for the younger team that want to get into leadership or ownership.”
Alternatively, there is the shared equity model that the likes of TC Group and ETL offer.
Then there are the unknowns. US capital is still flowing in. My inbox is still filling up with deal announcements. And almost every firm I speak to has ambitious growth plans for the next three years, with some, like AAB, even talking about quadrupling in size by 2030 – and it can’t do that without an insatiable M&A strategy.
And who can really predict what happens next in the profession? As my colleague Tom Herbert discussed on our podcast this week, the last big M&A wave was driven by the emergence of cloud accounting when firms decided they could stitch together multiple offices, even global offices, around a cloud platform. This time, the new catalyst is artificial intelligence.
Particularly in the States, roll-ups are buying traditional firms in the hope that AI will paper over the cracks and make these sprawling businesses run more efficiently. And in the accounting world, we’re always one compliance shock away from more upheaval.
But with the need to buy out retiring partners, an M&A strategy and staying ahead of the curve with tech investments, some firms don’t have the luxury to wait and see. And with valuations as high as they are, firms are going to grasp the once-in-a-lifetime opportunity while it’s there.
Article appeared in AccountingWEB by Richard Hattersley