Private Equity in Accounting – Testing the Waters or Permanent Competitor?

In full disclosure I have never met Jeff Bezos, the founder of mammoth e-commerce concern Amazon. I do know he makes more in two minutes than I earn in a year.

His company has a current market cap somewhere north of $1.5 trillion (yes that’s with a T) and in the interim he has purchased among others, The Washington Post, the Whole Foods supermarket chain, and online shoe retailer Zappos. He also operates a space exploration company called Blue Origin.

But that’s fodder for a future column.

No, today’s missive centers on Mr. Bezos and other private equity players wading into the accounting space via a client accounting services firm called Pilot.

Just last week the San Francisco-based Pilot, which initially launched in 2017, became the benefactor of a $100 million funding round courtesy of Bezos and a handful of other Silicon Valley investors including Whale Rock Capital and Sequoia.

On the heels of its latest largesse, Pilot’s valuation hit $1.2 billion (yes, with a B), an eye-opening figure especially considering that the market cap for the far more established and larger CBIZ is $1.75 billion.

Pilot’s CEO was a 16-year Amazon employee, and the staff is comprised primarily of accountants who work with small businesses performing such back-office tasks as payroll, bookkeeping, invoices and, of course, taxes. In other words, a typical CAS practice save for the exorbitant pipeline of available capital courtesy of Bezos and others with absurdly deep pockets. I’m quite certain Pilot will not require a GoFundMe page or PPP loan to continue on.

Already the company has secured partnership with such companies as American Express, Bill.com, online HR and benefits provider Gusto and Ireland-based payments processing company Stripe.

Which brings is to a larger issue – the presence of private equity encroaching in the accounting space. Those who follow trends in the profession have seen signs of this newcomer for a few years now, but nothing as high profile as the Amazon founder planting a flag as he has done with Pilot.

If Pilot is a Rorschach test, I’ll guarantee you will see a greater interest from PE, and more than likely competing against traditional CPA practices for acquisitions – particularly those offering niche specialties. And it is also safe to assume their acquisition terms will be a lot higher that a typical 1X multiple.

Like it or not, private equity investment in accounting is here. And like an unwelcome relative who unexpectedly drops in for a visit, will likely remain for the foreseeable future.