Private equity and professional practices

The private equity (PE) investment landscape in the professional services sector is evolving rapidly.

Where PE investors once focused exclusively on practices with predictable recurring fees, they’re now casting a wider net to include firms offering ad-hoc advisory work and multi-disciplinary services.

While advisory income may be less predictable, the underlying stability and growth potential of well-managed professional practices are attracting increasing attention from private equity houses – and it shows no sign of abating.

For law firms, accountancy practices, property consultancies, and medical practices, this shift represents both an opportunity and a complex decision. Whether you’re considering PE investment to fund expansion or as part of an exit strategy, there are several critical factors to evaluate before jumping.

Get your house in order

Before entertaining any private equity approach, ensure your practice is investment-ready. PE investors conduct rigorous due diligence, so robust management reporting systems are essential. This means having clear, accurate financial records, well-documented processes and transparent operational metrics. Forward-looking financial projections will also be scrutinised closely, with investors wanting confidence in your ability to forecast and deliver future performance.

Succession and partnership

For partnerships, PE investment raises fundamental questions about future structure and remuneration. How will continuing partners be compensated? What happens to existing profit-sharing arrangements? These decisions affect not just current partners but the firm’s ability to retain and attract talent. Consider whether the proposed structure aligns with your long-term vision for the practice and its culture.

Financial structure and tax implications 

Understanding how that investment will be structured is crucial. Will the purchase price be paid upfront or deferred? What are the tax implications of the transaction for the practice and individual partners? And what is the potential exit strategy of the investors? The timing of tax liabilities can significantly impact the net benefit of any deal. Early engagement with tax advisors is essential to model different scenarios and optimise the structure.

Valuation and due diligence

PE investors will conduct comprehensive due diligence covering financial performance, client relationships, regulatory compliance and operational efficiency. They will scrutinise key person dependencies and succession planning. Having professional support to navigate this process – including business valuation expertise – can help ensure you achieve fair value and present your practice in the best possible light.

Alternative routes for limited companies

Private equity isn’t the only option for growth funding or exit planning. For professional practices structured as a limited company, Employee Ownership Trusts (EOTs) offer tax-efficient succession solutions while maintaining practice independence. Management buyouts can also provide continuity for existing teams, while Enterprise Investment Scheme (EIS) arrangements or employee share schemes may offer alternative funding routes with different risk profiles.

How we can help

Private equity investment can provide the capital and expertise to accelerate growth, but it fundamentally changes the nature of your practice. The key is understanding what you’re signing up for and ensuring alignment between your goals and those of your potential PE partner.

Before making any commitment, seek professional advice on valuation, due diligence preparation, and tax planning. With the right preparation and support, PE investment can be transformational, but only if it’s the right fit for your practice’s unique circumstances and aspirations. If you would like to discuss further, get in touch.