Accounting firms Baker Tilly and Moss Adams agreed to merge in a deal valued at roughly $7 billion, which would make it the largest firm in the industry to be partly owned by private-equity investors.
The combined firm, which would be the sixth-biggest accounting firm in the U.S., will carry the Baker Tilly name, specifically Baker Tilly US on the audit side and Baker Tilly Advisory Group on the nonaudit side. The Wall Street Journal previously reported the two firms were in advanced talks.
Baker Tilly in the U.S. has international operations of its own that it largely amassed through acquisitions, which are part of the merger with Moss Adams. But the other member firms in the Baker Tilly global network, known as Baker Tilly International, are excluded from the transaction.
The combined new firm aims to generate about $6 billion in annual revenue by 2030, compared with the more than $3 billion they collectively booked in 2024, said Moss Adams CEO Eric Miles and Baker Tilly CEO Jeff Ferro.
The deal is expected to close in June, at which time Ferro will become CEO of the combined firm through his retirement at the end of the year. Miles would then succeed Ferro on Jan. 1, with Ferro remaining a director on the board. The firm will have about 11,500 people, including 600 partners from Baker Tilly and 403 from Moss Adams.
The deal follows Baker Tilly’s sale of a stake last year to Hellman & Friedman and Valeas Capital Partners, as well as a series of other private-equity investments in accounting firms in recent years.
CFO Journal talked with Miles, Ferro and Hellman & Friedman partner Blake Kleinman about the deal, partner equity and the prospects of an eventual initial public offering. Edited excerpts follow.
WSJ: How did Moss Adams land on this as the optimal structural play?
Miles: Our leadership team and board started looking at the industry in-depth and all the changes that were occurring over a year ago and we asked: If these forces continue to play out, what do we need to do to continue to thrive and be relevant in five to 10 years? We reached the conclusion that a merger best allows us to continue to thrive and be relevant. Baker Tilly stood out head and shoulders above our other peer firms given those long-term objectives. Private equity was secondary to this question.
WSJ: Eric, how did you think about giving up the Moss Adams name?
Miles: There’s an emotional aspect of choosing a brand that we were aware of. But we set that aside and said, from a business perspective, what makes the most sense? Moss Adams has a very strong brand and footprint. We don’t have nearly the national brand that Baker Tilly does. We’re viewing this as bringing two organizations together, creating a new organization, and we have to be called something. Baker Tilly is the logical brand to adopt. There are ways we’re working on to transition that Moss Adams brand equity to the Baker Tilly brand.
WSJ: How is the private-equity ownership of Baker Tilly changing with this merger?
Kleinman: All of the existing Baker Tilly shareholders—H&F, Valeas and importantly, the BT principals and partners—will be making meaningful new equity investments to facilitate that. The partners of the firm will actually have a majority ownership of the business.
We’re approximately doubling our equity investment, but our pro forma ownership will go down a bit. We’re meaningfully increasing our total investment in the company and our bet on the sector, albeit we’ll own slightly less. It’s a little bit the way the math worked out. Having significant partner ownership alongside us just creates the alignment between the financial sponsors and the partners that are really driving the value of the business. That positioning as a majority partner-owned firm will be attractive and differentiated from a recruitment perspective as we think about the next generation of talent that’s trying to decide where to build a career.
Ferro: H&F and Valeas [which collectively will now own less than a 50% stake] are giving the Baker Tilly partners an opportunity to increase our investment, which shows the enormous amount of support for the partner group from the private-equity perspective. I’ve not seen that as being a normal procedure that private equity would do.
WSJ: Are you securing new debt as part of the deal?
Kleinman: We’re using our existing private-credit facility to raise additional capital to facilitate the deal, as well as the equity investment that’s coming from the sponsors and the partners. It’ll go up in terms of total size, but the leverage level as our [earnings before interest, taxes, depreciation and amortization] multiple—about four times—will be exactly the same point that we started out with with Baker Tilly.
WSJ: What are some expansion areas for the combined firm?
Miles: There are quite a few revenue synergies. For example, Moss Adams has a very strong technology practice. Baker Tilly, too, has a technology practice. But our strength can help Baker Tilly.
Baker Tilly has a very strong real estate practice that can help Moss Adams in our footprint. So there’s geographic expansion of our relative capabilities that allows for growth. We both view there are geographies where we’d still like to add more depth and bench strength. We may need to develop new advisory capabilities that maybe don’t exist today. There are quite a few avenues of growth. I don’t see direct international expansion as one of those, but our ability to serve international needs certainly is.
WSJ: At $6 billion in revenue, you’d be closer to the Big Four. Should they view you as a threat?
Ferro: We want to be the largest provider in the middle-market space. We have no interest in going into what the Big Four are doing. It’s a totally different market and skill set. We believe there’s so much opportunity in the middle market, we don’t need to do it.
WSJ: Is Hellman & Friedman revising its time horizon for holding Baker Tilly given this new merger?
Kleinman: If we can find great business franchises that have durable competitive positions and long-term, clear growth drivers, we like to compound our capital. If you think about the scale of this business, approximately $7 billion is at entry. We think we can double or triple that [valuation of the combined firm] over the next three to five years. I think that makes an eventual IPO of the business a likely end state in terms of future liquidity path. That gives us the opportunity to take the business public, get some liquidity, but also to continue to hold the business as a public shareholder post-IPO. The private-equity market has obviously come to appreciate the characteristics of this industry. I think the next phase eventually will be a growing appreciation and development of public-equity-market support for these kinds of businesses.
Miles: Another private-equity firm probably can’t write a check of that size so it is the most likely outcome. It has upside in terms of providing ongoing liquidity and investment opportunity. Sure there’s a cost to being a public company, but I don’t think it changes the business fundamentals. Our focus on quality, serving clients well, developing talent—I don’t see how being publicly traded changes any of those fundamentals, probably just makes them even more important.
Source: wsj.com