Happy Friday. Here’s what we’ve got today…

• A look at the thesis behind private equity’s rush into accounting

• Plus, KKR and ECP sign $50 billion data center partnership

Accountants cash out:

In 2021, TowerBrook Capital Partners acquired accounting firm EisnerAmper's non-audit business, the first significant buyout activity in the industry. Close followers included New Mountain Capital's deal for Citrin Cooperman and Parthenon's investment in Cherry Bekaert, among others.

A few years on, early signs of success from those deals have led to widespread interest and a series of increasingly competitive processes as sponsors hunt for an accounting platform of their own.

In February, Hellman & Friedman and Valeas Capital Partners acquired a majority stake in Baker Tilly at a more than $2 billion valuation, the largest U.S. accounting firm to take outside capital.

Just six weeks later, New Mountain Capital broke that record with its second accounting platform, taking a 60 percent stake in Grant Thornton U.S.' non-audit business.

It’s even more active in the middle market, but the recency of investor interest means there's still a fragmented universe of targets that are up for grabs.

Baker Tilly CEO Jeff Ferro characterized the firm's new strategy under H&F as an "extremely aggressive" push to bolt on smaller middle market and regional providers.

For H&F, it’s a chance to put more capital to work. Partner Blake Kleinman says the firm’s investment could even double in size from future add-on equity contributions.

Using a similar strategy, new entrants should have more leeway to go after a sub-scale deal if they believe it could serve as a starting point.

Bob Lewis, President of accounting practice management advisory firm The Visionary Group, tells Accounting Today that "we've got ballpark 400 [accounting firms] in this country that are probably viable for any kind of a private equity opportunity."

That figure stretches to 1,500, says Lewis, if you drop down into the $5 to $10 million revenue range, which can mean attractive founder-owned targets searching for a viable succession plan.

The value creation story also has more substance than the headline consolidation play.

Like early trends in law firm investments, accounting is preparing for its shift from a traditionally human capital-heavy operation to something closer to a tech-enabled services business.

New vertical workflow tools and AI-led automations seem likely to disrupt the industry’s status quo. Prolonged supply shortfalls in the CPA labor market could add even more urgency (and have already contributed to an offshoring trend).

But, a pile of cash is often needed to fund modernization efforts. For firms still under the partnership model, an understandable reluctance to contribute personal capital can become a roadblock.

Those dynamics mean an even greater opportunity for first-movers to open up a gap over slow-to-adopt peers—a potential competitive tailwind for sponsor-backed firms.

It could be a meaningful difference. Lewis believes today's average of $200k in revenue per professional will be closer to $400k going forward.

This line of thought was one of the factors behind Baker Tilly's decision to partner with H&F, says Ferro: “Over the last decade, we did a really nice job building up our balance sheet, putting more equity into the organization. But the landscape got more complicated, more competitive, and it got more expensive to run the firm and to achieve our strategy.”

Early evidence suggests sponsor-backed firms are indeed out-performing legacy competitors.

Three of the top four fastest-growing U.S. accounting firms are under private equity ownership—the initial cohort of EisnerAmper, Citrin Cooperman, and Cherry Bekaert—with year-over-year topline growth of between 38 to 100 percent, benchmarked against an industry average of 18 percent, per Accounting Today.

The figures are a little misleading, given their inclusion of inorganic growth, but there's no disputing private equity’s rapid take of market share.

And if all else fails, the downside case isn't bad either. Sticky clients and stable, predictable cash flows are perhaps the biggest draw for investors.

The accounting industry has had only "two down years in 30 years," notes Kleinman, on top of its "great track record of organic growth."

“Up to 85 percent of engagements are repeat work,” says Lewis. "It's mandatory.”

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Other sponsors active in the space include Charlesbank (invested in Aprio this July), TPG (who tried to carve out EY's non-audit business earlier this year), Aquiline Capital Partners (LeaseCrunch), DFW Capital Partners (Harris CPAs), and Unity Partners (NDH).

Just last month, Lovell Minnick Partners announced an investment in Cohen & Company, and Further Global Capital Management took a minority stake in Armanino.

Next up could be New York-based firms PKF O'Connor Davies and Carr, Riggs & Ingram, which have each hired bankers, per the Financial Times.

There’s also the ongoing Rothschild-led auction for Grant Thornton UK in which Cinven, EQT, and New Mountain have progressed to the final round after beating out initial interest from a field that included Carlyle, Blackstone, Permira, CVC, and Bridgepoint.

• Comcast is exploring the separation of its NBCUniversal cable networks business, which includes Bravo, E!, MSNBC and CNBC, with options including a spinoff, tracking stock, or merger.

• Blackstone offered to acquire a minority stake in Rogers Communications' (NYSE: RCI) wireless backhaul network infrastructure business for C$7 billion.

• Francisco Partners agreed to acquire AdvancedMD, a cloud-based medical office software platform, from Global Payments (NYSE: GPN).

• EQT Partners acquired PageUp Group, a human resources software platform, from Battery Ventures.

• Presidio Investors acquired a majority stake in The Only Agency, a Los Angeles-based talent management firm.

• Sagard NewGen acquired FuturMaster, a supply chain planning platform, from Cathay Capital.

• Range Media Partners acquired Fresh Mgmt, a talent management firm representing celebrity chefs, including José Andrés and Kristen Kish.

• BC Partners Credit agreed to acquire Runway Growth Capital, a provider of loans to early-stage companies.

• Aquarian Holdings acquired a majority stake in PACE Equity, a Milwaukee-based clean energy real estate investor.

• VSS Capital Partners invested in Lane Four Consulting, a Toronto-based Salesforce consulting business.

• Lovett Care, backed by H.I.G. Capital, acquired New Care, a Cheshire-based elderly care home operator with 15 facilities across the UK.

• TMA Systems, backed by Silversmith Capital Partners, acquired MEX, a provider of enterprise asset management and CMMS solutions.

• iCapital, a portfolio company of Apollo and Blue Owl, acquired AltExchange, a data aggregation and reporting platform for asset managers.

• Gridiron Capital invested in Health Monitor Network, a healthcare marketing and medical education platform.

• Two Circles, a portfolio company of Charterhouse Capital Partners, agreed to acquire Kore, a data and intelligence platform for sports sponsorship management, from Serent Capital.

Tech, Vertical SaaS, & Misc. Enterprise

• Insider, an omnichannel customer engagement platform, raised $500 million in Series E funding led by General Atlantic.

• Noma, an AI application security provider, raised $32 million in Series A funding led by Ballistic Ventures, with participation from Glilot Capital Partners and Cyber Club London.

• Spot AI, a video surveillance and analytics platform, raised $31 million in new funding led by Qualcomm Ventures, with participation from Scale Venture Partners, StepStone Group, Redpoint Ventures, Bessemer Venture Partners, GSBackers, MVP Ventures, and Cheyenne Ventures.

• Decart, an Israeli AI infrastructure and research lab, raised $21 million in seed funding led by Sequoia Capital, with participation from Zeev Ventures.

• MealMe, a food and retail ordering API platform, raised $8 million in Series A funding led by Mercury Fund, with participation from Gaingels and Palm Drive Capital.

• Verax AI, a developer of AI production visibility tools, raised $7.6 million in seed funding led by TQ Ventures, with participation from Concept Ventures, Cardumen Capital, Seedcamp, InMotion Ventures, and XTX Ventures.

Fintech

• BondBloxx Investment Management, a fixed-income ETF provider, raised $27 million in new funding led by Macquarie Asset Management.

• Tilled, a PayFac-as-a-Service platform for embedded payments, raised $12.5 million in Series B funding co-led by Canvas Ventures and UPC Capital Ventures.

• Tola, an AP/AR platform for SMBs, raised $10.2 million in seed funding led by Sequoia Capital, with participation from Cherry Ventures, Creandum, RTP Global, Founders, YC, Zinal Growth, and Pathlight VC.

Consumer & Media

• Buddy.ai, a conversational AI tutor for children, raised $11 million in seed funding led by BITKRAFT Ventures and Educapital, with participation from One Way Ventures, J Ventures, Point72 Ventures, and Goodwater Capital.

Healthcare

• Evommune, a Palo Alto-based biotech developing treatments for immune-mediated inflammatory diseases, raised $115 million in Series C funding co-led by RA Capital Management and Sectoral Asset Management.

Industrials, Greentech, & Other

• LuxWall, a developer of vacuum-insulated windows, raised $51 million in Series B funding co-led by Climate Investment and Barclays Sustainable Impact Capital, with participation from Carbon Equity, Breakthrough Energy Ventures, Prelude Ventures, 2150, Khosla Ventures, and Baruch Future Ventures.

• Glow, a decentralized solar infrastructure network, raised $30 million in new funding co-led by Framework Ventures and Union Square Ventures.

• Third Wave Automation, a developer of autonomous forklifts, raised $27 million in Series C funding led by Woven Capital, with participation from Innovation Endeavors, Norwest Venture Partners, and Qualcomm Ventures.

• Matter Intelligence, a hyperspectral Earth observation startup, raised $12 million in seed funding led by Lowercarbon Capital, with participation from Toyota Ventures, Pear, and E2MC.

• KKR and Energy Capital Partners announced a $50 billion partnership for data center, power generation, and transmission infrastructure development.

• Gemspring Capital Management closed a single-asset continuation vehicle for Shrieve Chemical Company led by StepStone Group.

• Sango Capital is raising $300 million for its fourth Africa-focused buyout fund.

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