Grant Thornton partners all set to push boat out as a sale looms

The Sunseeker Ocean 156 cut an imposing shape as it bobbed in the Southampton marina last month. The 82ft superyacht, which boasts three decks, spacious cabins and a built-in barbecue, was appearing for the first time in public at the city’s annual boat show, which drew nautical enthusiasts from across the country.
Among the hordes of well-heeled would-be sailors gazing up at the Sunseeker were several UK partners from the accountancy firm Grant Thornton. If all goes their way, they may be in the market to snap up a luxury yacht of their own next year.
Grant Thornton’s partners, who earned an average of £644,000 last year, are set for a big windfall as their firm prepares to sell a majority stake to a private equity giant. If a deal goes ahead, it will be Britain’s biggest accountancy takeover, but it is dividing the City’s huge accounting community.
Supporters believe a deep-pocketed investor will be able to invest in Grant Thornton and help it win more clients. Others believe that the deal is full of complications. “This is really not going to be straightforward,” said one person who advised a potential suitor that has dropped out of the bidding.
The firm, which is Britain’s sixth-biggest auditor, is expected to sell a 60 per cent stake to its desired private equity house, in a deal that will value it at more than £1.5 billion, according to City sources. Partners will receive a cash payout plus an equity stake in the remaining business, which will cumulatively be valued in the millions of pounds, it is thought.
Most of the world’s biggest buyout giants spent the summer poring over Grant Thornton’s financial data, mulling whether to make a bid. But the final stage of the bidding is now down to three: the Swedish firm EQT, Britain’s Cinven and the US firm New Mountain Capital, which already owns Grant Thornton’s US business. Last week, New Mountain Capital also merged the advisory businesses of both the US and Irish arms of Grant Thornton.
Grant Thornton UK will choose between the trio of buyout firms in the coming weeks.
The smart money is on New Mountain Capital. Several parties close to the deal pointed out that because it already owns the American arm of Grant Thornton, New Mountain has the most to gain and is likely to pay a premium to beat the competition. The resulting deal, which would, in effect, be a merger between the US and UK arm, would also make it easier to serve cross-border clients.
The sale is being watched closely by Grant Thornton’s competitors. Private equity buyouts of British professional services practices have been rare, so there is not an established precedent for the valuations that they can fetch, or, crucially, the size of the payouts for partners. Several people said that other firms were waiting to see how the Grant Thornton deal concluded, before deciding whether to pursue their own private equity buyout.
Some partners at these rival practices said they would welcome the injection of private equity cash. Investment is risky, and under the long-established partnership model at professional services firms, it comes out of partners’ own pockets. Several of the private equity firms that have bid for Grant Thornton claimed they would spend heavily on hiring staff from competitors to boost the group’s audit and other divisions.
One private equity executive who had run the rule over Grant Thornton said: “Right now, these businesses have limited access to equity capital and debt capital and they are reliant on access to capital from partners, who frankly would rather take money out.”
They added that several of the private equity firms bidders were confident that they could improve profitability by streamlining Grant Thornton better than a partnership model could. This, in essence, would mean stripping out costs — the sort of operational surgery in which private equity firms are well-versed.
Others are sceptical, worrying about the impact of private equity ownership on the quality of work they would be able to do — particularly after a period of many scandals in the audit industry, from Carillion to London Capital & Finance. One adviser to several of the private equity suitors said: “PE is motivated by super-fast growth. That, in a highly regulated audit context, is very hard to do.” They also questioned whether a new private equity owner would pick up the bill were Grant Thornton to fall foul of the regulator, or whether existing partners would assume the liability.
Those with doubts about a private equity deal also said that it could lead to a flight of senior employees below partner level — those who do not get the payouts from a sale and suddenly find, too, that their road to partnership, promised for years, has been disrupted.
“I can’t wait to start hiring from them,” a rival chuckled. However, those close to the sale process said that providing an equity stake to high-performing partners was intended to motivate the rainmakers to stay on.
The winning bidder will take on a firm that has faced numerous setbacks in recent years. Having once positioned itself as a challenger to the dominance of the big four professional services practices — PwC, EY, Deloitte and KPMG — Grant Thornton has been blighted by several high-profile audit scandals. It was fined £2.3 million by the Financial Reporting in 2021 for a “serious lack of competence” in its audit of the collapsed café chain Patisserie Valerie. In the following year, it was fined £1.3 million for its audit of Sports Direct. It was also fined £700,000 in 2021 for its audit of the bankrupt outsourcer Interserve.
Grant Thornton has also bowed out of lucrative audits for “public-interest entities” — the largest, often-listed, companies — after concluding that they were just too difficult to get right.
However, one senior partner at a rival professional services firm said that private equity players would not be interested if they did not see the chance to improve Grant Thornton’s fortunes. “There is definitely a window of opportunity for it to grow,” they said.
Let’s hope so, for the sake of the senior cadre of Grant Thorntonites gazing longingly at the superyachts in the docks of Southampton.