Feargal McCormack has spent his life working with businesses, helping them navigate the bad times and working with them to exploit the good times also. 

The Co Down accountant first did it with the Industrial Development Board, the agency then charged with luring foreign direct investment into Northern Ireland. And then, he started doing it with FPM, the Newry accountancy firm he established in 1991. 

In the years that followed, he would scale the practice into one of the biggest independent accountancy firms in the North with 120 staff in five offices across the island of Ireland. 

His firm worked across the political divide and built up a sizable roster of clients in both the public and private sectors. However, the area closest to McCormack’s heart was family businesses. 

Even now, he loves teasing through the weeds with family business owners, helping them create effective and elegant succession plans that capture the family’s personal and business assets. “It often requires hard decisions,” he told me when we met to discuss his career journey and the future of the accountancy sector. His message to family businesses is straightforward: “Forget about blood — the best people need to run the business, or we need to move it on.”

Three years ago, McCormack started to think about succession at his own firm. He was not ready to retire, but he knew that he did not want to work full-time forever. Plus, he could see the industry was changing — to maintain its position, he knew FPM needed more money for technology, for mergers, for people. 

The way McCormack sees it, businesses either “innovate or evaporate”. The same was true of his own.

So, he held a series of informal conversations with the other ten partners at the firm. In the end, they opted to sell the business to private equity (PE). 

After a short sales process, AAB, a British accountancy firm backed by August Equity, came out on top. The deal was announced in May 2022 and saw FPM become the first major accountancy firm on the island to go down the private equity route. Even then, McCormack, a former president of Chartered Accountants Ireland, felt others would follow and private equity would lead to a huge consolidation of the industry here.

“Why did I think that was going to happen? For a number of reasons. Number one, technology,” he said, pointing to the growth of AI and data on the market. 

“I was conscious even then, that you couldn’t run a business in a data-free zone. And to get into data, you’re into a whole new level of investment. And then obviously cybersecurity — and in the industry, we’re in a regulated sector — cybersecurity was to go the level of investment required. So I just felt that it was the way to go.”

Plus, he believes that private equity is a perfect match for accountancy. Private equity likes strong reporting metrics and a forensic approach to business. So do accountants. While the ownership changes, the client and the accountant servicing them stay the same.

“On a unit cost, you need scalability. Scalability is fundamental to the game now,” he said. 

McCormack may have been among the first to sell the firm to private equity in Ireland, but he is certainly not the last.

The accountancy sector has been marked by new arrivals, mergers, acquisitions, and transactions over the past two years. Private equity money has been the driving force behind many of the deals.  

Interpath and Azets, two private equity-backed firms, have entered the market, as has Xeinadin, the group backed by private equity firm Exponent that bought Cork accountancy and wealth management firm Quintas. The list goes on.

Most of the deals have involved small or mid-market firms. 

Ten days ago, one of the big beasts of the market announced a transformational deal. 

Grant Thornton is not one of the traditional big four — PwC, Deloitte, KPMG, and EY. But, in Ireland, it ranks number five. And it has been growing at a breakneck pace. 

In 2018, Grant Thornton’s Irish operation had revenues of €118 million and a headcount of 1,400. By the end of last year, revenues had ballooned to €300 million while staff numbers had grown to 3,000.

Earlier this year, its US sister firm sold a piece of itself to private equity investors, with New Mountain Capital acquiring a majority position in the firm’s non-audit business.

Last month, after months of speculation, Grant Thornton Ireland said it planned to sell its non-audit business to the US firm. Its audit business, or so-called attest services, will be carved out and remain under the control of partners, something required by national rules. 

The deal, expected to close in January, will see a handsome payday for the firm’s equity partners. But it will also give the firm the financial firepower to drive expansion and fund mergers and acquisitions. 

As I wrote when the deal was announced, the plan is to use the US-Ireland axis to create a larger global player, backed by private equity, that can erode the heavy market share of the traditional big four.

The link-up between the US and Ireland is expected to be the springboard for future deals. In Ireland, it is looking at further consolidation in the accountancy and finance space, and also in technology and consultancy.

This will accelerate if, as seems likely, Grant Thornton in the UK joins the US-Ireland alliance. Negotiations between Grant Thornton UK and New Mountain remain live. 

It is estimated that ten of the 30 largest US accounting firms could soon be in private equity hands.

In many ways, what is happening in Ireland is mirroring what has occurred in the US in recent years. 

Since August 2021, when EisnerAmper, the 18th-largest firm in the US, struck a deal with TowerBrook Capital Partners, 12 accounting firms have accepted PE investments, according to research from Koltin Consulting Group research. (PwC also sold its global mobility tax and immigration services business to a PE firm).

Armed with PE money, the firms have traditionally gone on a land grab, consolidating the market by snapping up smaller firms. Three of the five fastest-growing firms in the US are all “pursuing aggressive M&A strategies fueled by private equity money”, according to an analysis by Accountancy Today, a trade publication.

Based on current trends, it is estimated that 10 of the 30 largest US accounting firms could soon be in private equity hands.

The trend has not gone unnoticed among regulators, with US policymakers recently raising some concerns about whether private equity ownership could change the “tone at the top” of accounting firms and affect the quality of their audit work. 

In June, Paul Munter, chief accountant at the US Securities and Exchange Commission, said “firm leaders need to be sensitive to the message such arrangements could send and stand ready to correct any such misimpressions”.

For firms such as Grant Thornton and funds such as New Mountain, the trend makes sense on a variety of levels. In a recent industry report, Thompson Reuters highlighted talent acquisition and retention, operational expertise, an exit strategy for founders, and access to capital as a stimulus for making mid-market deals in the sector. 

“The rise of private equity in the accounting sector signifies a pivotal shift, offering small firms unprecedented opportunities to access capital, operational expertise, and other strategic advantages. While the influx of PE investment can pose challenges such as pressure for rapid growth and potential cultural clashes, the benefits may outweigh the drawbacks,” according to the report.

The accountancy industry in Ireland is in the middle of an unprecedented shake-up. Feargal McCormack was one of the first to see the opportunities offered by private equity firms two years ago. Partners in Grant Thornton have also now cut a deal. Others will likely follow.

Elsewhere this week…

Amanda Pratt, one of the Avoca siblings, talked to Alice about life after leaving the leading Irish brand and going in a different direction with her new shop, Amo & Pax. She also spoke about her fears, explaining how she almost pulled the plug on Amo & Pax last year. Even after decades of success, she says she still feels as frightened, sometimes, as she did as a young woman going to London with Avoca clothing for the big industry fashion trade fairs.

Ahead of the US election, the chief executive of social media monitoring and analytics firm NewsWhip Paul Quigley talked to Jonathan about the increased complexity his company faces in a rapidly changing social media landscape.

The environmental watchdog wants a criminal prosecution against Clairstone Co for commercial peat extraction without a licence the agency claims the company needs. As the case awaits a 2025 court hearing, EPA inspection reports show the company continues to work the site. Niall had the story.

UK Chancellor Rachel Reeves’s budget includes plans for heavy capital investment funded by widespread borrowing. It is in stark relief to the budget surplus and wealth fund investments unveiled in Dublin earlier in the month. Michael gave his analysis of the UK budget.

The Government offers generous tax deductions for share-based pay and the cost of those schemes is spiralling. However, based on the current data, they are out of the reach of start-ups and small businesses, and are almost exclusively used by multinationals. I ran through the numbers.