For the mid-size accounting firm, there are often two stories.
One trend in recent years has been to see them sell into private equity, where the management styles vary and the new owners see growth potential.
“That continues to have a pretty big impact on the market,” said Tom Barry, managing partner of downtown-based GHJ. “There are firms that have merged up and taken outside capital. That’s one choice. Another choice is firms staying firmly independent. That’s us.”
Regardless of the path, these firms aren’t immune to the trends that are challenging the world of accounting and auditing – a need for smaller firms to find succession off-ramps and an ongoing battle for talent among a smaller pool of certified public accountant graduates.
Michael Amerio, whose Pasadena-based firm Lucas Horsfall was acquired by a private equity-backed platform in 2024, seems to agree.
“There certainly is a civil war, in effect, between accounting firms taking people, but really that’s one thing that’s out of necessity, like two wild animals fighting for survival,” Amerio said. “What’s really causing this is, the amount of people graduating with accounting degrees compared to five years ago, it’s (down) some crazy percentage.”
Amerio added that the number of people taking the CPA exam “is considerably down” over the last four years.
“That’s put a big strain on our profession,” he said.
Most conversations with accounting professionals in recent years will likely have included commentary on the consolidation within the industry.
A study released in October by Minneapolis firm Wolters Kluwer Tax and Accounting indicated that 26% of accounting firms had merged with another in the past three years. Similarly, over a quarter – at 27% – of the firms surveyed said they’d acquired another in that time frame. Meanwhile, 32% of the respondents said they have received an investment by private equity in the past three years.
For Lucas Horsfall, such activity has nearly doubled the firm’s headcount, which is approaching 200 in about a year. Two of the moves last year – the acquisitions of Seiler & Associates and Skeehan & Co. – bolstered the firm’s presence in Pasadena. The third purchase – Gettleson, Witzer & O’Connor – added to its Encino footprint.
“As we’ve grown, we’ve been able to build depth and experience and build out some specialty units within our firm,” Amerio said. “I think we’re able to now really approach the marketplace with some specialty niches and really be difference makers and put us all on the line in terms of service delivery with some of the biggest firms around. I think we’re in a really good spot.”
GHJ has also used acquisitions to bolster existing practices or add new ones. It added traditional accounting firm GGF from Encino into the fold in October 2024. In June, GHJ acquired Century City-based Hacker, Douglas & Co., which specifically complements an existing profit participation services practice that focuses on film and TV production. And just last week, the firm added Newport Beach-based Blueprint CFO, bringing a strong outside chief financial officer skillset to GHJ.
“We’re not growing for growth’s sake,” Barry said. “We’re looking for the right pieces that fit strategically with what we’re trying to do.”
One thing fueling consolidation, Barry said, is a wave of smaller accounting practices essentially in need of a succession plan – he pointed to Hacker Douglas as an example here.
“We have a plethora of people leaving the profession or aging out. A lot of the smaller firms have people of retirement age, and they need a succession plan,” he explained. “What we’ve had success on is people who want to get paid fairly for their firms but are more concerned that their clients and their team will be taken care of.”
Accounting is also among the top industries for artificial intelligence technology adoption, in a quest to make its most rote procedures more efficiently managed.
“AI is an area we’re continuing to experiment with and execute on,” Barry said. “That’s changing the way we look at things.”
Of the firms surveyed in the Wolters Kluwer report, 72% of respondents said they use AI programs weekly, with 35% reporting daily use. Meanwhile, 77% of the firms said they plan to increase their investment into AI technology in the next three years, with 40% targeting double-digit growth on that investment.
Of the regular AI users, 73% reported “better-than-expected” results, particularly in client service, financial insight and general efficiency.
Amerio said the most obvious applications for AI fall under tax return preparation – which is big money for an accounting firm of Lucas Horsfall’s size. Think document scanning and data population.
“We’re certainly figuring it out how to best deploy it, and each of our departments are deploying it differently,” he said. “There’s AI out there now that’s been around for a while, but it’s really getting better and better.”
Because of AI’s increasing ability to handle these tasks, Amerio said he anticipates accounting will shift in nature from compliance to consultative – which represents a bigger value to clients.
“That’s how you go out and really get clients, by being able to add value,” Amerio said. “Because of the use of these AIs, we’re going to be hiring and within a short period of time, we’re going to be expecting (those hires) to be contributing at a different level, because they’re not going to have the need to do the data input like we have done historically.”
This aligns with Wolters Kluwer’s assessment: 93% of all firms provide advisory services, with 35% reporting that clients are asking for strategic business advice. Additionally, 47% of surveyed firms say they plan to increase workflow automation.
And this is where Lucas Horsfall’s private equity-backed platform – Ascend, which is owned by Alpine Partners – comes in handy. Amerio said those backers have completely taken on the task of upgrading technology hardware and shoring up the appropriate software for the firm.
When discussing the accounting industry, there is of course the vaunted Big Four – Ernest & Young, PricewaterhouseCoopers, KPMG and Deloitte – who global networks dwarf most other professional services operations in terms of headcount and reach.
In a way, however, Barry said he challenges that framing a bit.
“You look at BDO or at Baker Tilly, Grant Thornton, these are billion-dollar firms in revenue,” he said. “It’s not just the Big Four. I’d say the top 15-20 firms are really operating at a different scale from the 25 through 100. There’s a huge scaling of size.”
Indeed, revenues are climbing industry-wide for accounting, with 83% reporting increased revenues last year and 79% showing improved profitability.
For GHJ, Barry said he’s anticipating $75 million in revenue for this year and anticipates a regular 10% year-over-year growth rate for the foreseeable future. Meanwhile, Amerio said 2025 is looking like about $55.2 million in revenue – up from the $34 million earned in 2024.
This sort of profitability – which comes as firms, again, are jockeying for an increasingly limited talent pool – likely reflects the client services going beyond tax work.
“Some of the things we knew we needed to do was, our clients were also growing and to retain them, we had to be able to do more. The first thing was international tax,” Amerio said. “Our manufacturing and our distribution clients were moving beyond Los Angeles, and they were opening up in Mexico, opening up factories in China and such. That’s a whole new area of taxation.
“As our firm grew and our clients got older,” he continued, “they need get into estate tax and wealth transfer and all of that, so we had to develop some niches within the whole gifts and estates and trusts and estates. As we wanted to continue expanding services, a service line that we got into was M&A consulting. Initially we got into it through buy side, and now we do a lot of buy and sell side, transactional assistance type stuff.”
Barry said a similar thought process has motivated his evolution of GHJ throughout the years. It has also prompted the firm to expand its reach, with outposts also in San Jose, Denver and Buffalo.
“Our client base is also as sophisticated,” he said. “We do a lot of international work. We do a lot of state and local tax work. We have a lot of different services that you normally wouldn’t find in a firm of our size.”
