Mid-tier sees surge of interest in private equity and ESG
Mid-tier sees surge of interest in private equity and ESG
A quarter of mid-tier accountancy firms surveyed by ICAEW are considering private equity investment, and close to half are planning new ESG service lines. But access to skills remains key concern.
The latest edition of ICAEW’s Mid-Tier Evolution research reveals that UK firms see securing the right talent and skills as a key priority and private equity (PE) investment as the most prominent macro trend driving change in the profession.
Run for the second year, ICAEW’s research surveyed 36 UK mid-tier accountancy firms on trends shaping the sector and their organisation’s plans for the future.
The research found that twice as many firms had an interest in pursuing PE investment than in 2024, and just under half of firms were planning to start offering environmental, social, and governance (ESG) related services. Last year only 10% saw ESG as a growth opportunity. It also confirmed that access to skills remains a challenge, with close to half of surveyed firms saying it is a barrier to growth.
“These new insights reflect both a continuation of the trends and pressures reported in last year’s research, while also revealing new areas of focus driven by emerging challenges and opportunities,” says ICAEW Chief Executive, Allan Vallance. "Notably, there is a growing emphasis on ESG as an emerging service line. Compared to the previous year’s report, more firms are actively investing in this area, recognising its potential for future growth.
“The research also identifies a significant challenge in sourcing and developing the specialised skills required to meet evolving client demands. Despite these hurdles, firms continue to demonstrate resilience and adaptability, maintaining a trajectory of ambition and sustained growth.”
Private equity: drivers and reception
This year’s research confirmed that PE investors are actively pursuing the accountancy sector. Almost all the surveyed firms that are currently independent have been approached by at least one PE house.
Close to two-thirds of respondents (64%) identified PE investment as the top macro trend shaping the profession, with 25% of firms expressing an interest in pursuing such investment. In total one-quarter said they had already secured PE funds, with 3% receiving such investment in the last 12 months.
The research also suggests that attitudes towards the increase of PE investment among the mid-tier vary. Of the independently owned firms surveyed PE investment was not appealing to 74%, up from 64% in 2024.
While some of the surveyed firms welcome the influx of capital and resources as an opportunity for growth, others had concerns about cultural changes to a firm, talent retention, client relationships and senior role succession planning.
“Our firms have told us that private equity interest in the mid-tier accountancy sector remains high, and while we expect this trend to continue and become a major force shaping the future of the profession, it is important to recognise that private equity is not a one-size-fits-all solution to growth," says Vallance. “For every firm that identifies opportunities to broaden its reach or invest in tech, another will recognise it as a threat to culture and talent retention.”
Skills challenge and ESG opportunity
The skills gap remains a pressing concern, with nearly half of firms reporting that it is a barrier to growth for their clients. For the firms themselves, attraction and recruitment of qualified staff was identified as one of the top three talent challenges by more than 50% of firms, with competitive remuneration and a shortage of suitable candidates being significant issues.
Developing staff capabilities and addressing skills shortages is also a significant focus for many mid-tier firms, with 44% of firms reporting future proofing skills as a top 3 talent challenge and three-quarters of firms rating investment in upskilling existing staff as a high priority for the next three years.
The opportunity offered by ESG highlights the interconnectedness of skills and growth. Despite not featuring as one of the top three macro drivers of change in this year’s survey, almost half of the responding firms indicated that they plan to start offering ESG services within the next three years.
Therefore, it’s not entirely surprising that two-thirds of firms that intend to start offering ESG services are already investing in upskilling staff and 50% are forming partnerships with ESG experts. Meanwhile, of those firms that don’t plan to offer ESG services, two-thirds said it was due to a lack of sufficient internal expertise and resources.
“ICAEW has long recognised the increasing need to equip finance professionals with the strategic insight and technical expertise required to lead sustainability and ESG initiatives,” say Vallance. “We have launched our Sustainability Accelerator Programme this year to ensure our members have these vital skillsets.”
Alongside explaining the fundamental principles of sustainability, the elearning programme, which is free to ICAEW members, covers building the business case, ESG reporting, strategy and risk management.
M&A activities links to PE and skills
One-third of the firms surveyed by ICAEW identified M&A activity as one of the top three drivers for fee growth in the last 12 months. Nearly half of the firms surveyed confirmed they had engaged in acquisitions in the previous 12 months, rising to 80% when considering previous years.
Looking ahead, more than two-thirds of firms expressed a strong interest in pursuing further acquisitions, viewing them as an opportunity to grow their firms. PE investment appears to play a major role for potential M&As - almost half of PE-backed firms identified M&A as a top fee growth driver, compared with only 4% of firms without PE backing.
Alongside growth, other common motivations for M&A and PE activity include investment in technology and the acquisition of specialised skills. In fact, more than 80% cited access to, or expansion of, skillsets as a key driver for considering M&A, and more than half of the firms asked were motivated by the opportunity to secure new talent for succession planning. Similarly, more than three-quarters of PE backed firms identified talent acquisition as a main reason for accepting PE investment.
Thriving and driving growth
The research also revealed that all firms surveyed reported a growth in fees, compared to 93% in 2024, in a clear sign that the mid-tier market is thriving. New clients, increased spend by existing clients and increased charge out rates were the primary drivers for fee growth.
ICAEW’s research comes hot on the heels of the UK government’s Industrial Strategy and Sector Plan for professional and business services (PBS), which recognised PBS as a key growth sector, as well as an enabler of growth for the country.
The government outlined four changes to deliver on its ambition to create the world’s most trusted advisory sector by 2035, including reforms to support technology adoption, boost AI skills and broaden recognition of UK professional qualifications overseas.
Vallance says: “Beyond doubt is the crucial role mid-tier firms play in supporting the national agenda for economic growth. The professional services sector was identified as a key growth driving sector in the government’s new industrial strategy, and the impeccable fee growth reported by firms in this report clearly demonstrates why our sector’s contributions to the economy are held in such high regard.”
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