Private equity and ESG top the mid-tier agenda, ICAEW finds

Mid-tier accountancy firms are increasingly exploring private equity investment and expanding into ESG service lines, according to recent research from the ICAEW. However, a persistent skills gap may hinder progress. The latest edition of Mid-Tier Evolution highlights a sector balancing transformation with constraints.

Key Trends

• Private Equity Interest: A quarter of the 36 UK mid-tier firms surveyed are considering PE investment, up from previous years. Nearly all independent firms reported being approached by PE houses, with 25% having already taken investment—3% in the last 12 months. However, 74% of independently owned firms find PE unappealing due to concerns over client relationships, culture, and succession planning.
• ESG Expansion: Nearly half of firms plan to offer ESG-related services within three years, up from just 10% last year. However, two-thirds of firms not pursuing ESG cite a lack of in-house expertise as the primary barrier. Those moving forward are upskilling staff (66%) or partnering with external experts (50%).
• M&A Activity: Half of the firms completed acquisitions in the last year, with 67% eyeing further deals. PE-backed firms are far more likely to view M&A as a driver of fee growth (47%) compared to non-PE firms (4%). Over 80% cite access to new capabilities as a key motivator.
• Growth Resilience: Every firm surveyed reported fee income growth, driven by new clients, higher spend from existing clients, and improved charge-out rates—up from 93% in 2024.

Challenges

• Skills shortages in ESG and other emerging areas remain a significant hurdle.
• Cultural concerns persist around private equity investment, particularly regarding talent retention and firm identity.

ICAEW Chief Executive Iain Vallance emphasized the sector’s strategic shifts: “More firms are investing in ESG, recognizing its growth potential, but the skills gap is a major challenge. The mid-tier’s resilience is clear, yet talent and technology investment will be critical to sustaining momentum.”