Inside a TPG-Backed Accounting Firm’s Plans for AI and More Acquisitions

Smith + Howard, an accounting firm backed by private equity giant TPG that has grown in part by snapping up smaller firms, is gearing up for a new round of acquisitions—including two that could close by the end of the year. As it grows, the firm is exploring how AI could handle basic work where there’s “a lot of lather, rinse, repeat,” CEO Sean Taylor said.

The firm is hoping AI will help it expand without having to hire accountants at the same pace it did previously—reflecting a broader bet among private equity firms and AI labs that the technology can help boost profits when consolidating professional services firms.

Smith + Howard, which has more than 800 employees across seven states, expects to bring in about $175 million in revenue this year, a number that has grown around 10% to 15% annually for the past decade, excluding acquisitions. It was an active buyer of smaller firms under previous backer Broad Sky Partners, which sold its stake to TPG in August.

Now it’s continuing that strategy, aiming to add another 20% to 25% of its 12-month forward revenue through acquisitions. It will likely lift its target size for acquisitions to between $5 million and $50 million in annual revenue versus $2 million to $20 million previously. Smith + Howard is planning more acquisitions in 2027.

The Atlanta-based firm is seeking to expand in more U.S. cities and add services it typically refers to outside firms. It expects human work to remain central to its business and client relationships, but it is exploring AI to cut down on manual work and outside software costs when it makes sense.

Private equity firms and AI labs have been touting the potential of AI to boost returns on portfolio companies, spurring partnerships including OpenAI’s majority-owned Deployment Co., which launched in May with backing from TPG and others to embed engineers inside businesses.

Venture capital firms are getting in on the action too, with Thrive Capital launching Thrive Holdings last year to buy and modernize businesses such as accounting firms, while General Catalyst is pursuing AI-focused rollups.

But there’s some debate about whether businesses will pass on the savings from AI to customers, which would wash out the technology’s financial benefits. Brian Goffman, managing director of AI at TPG, said the accounting industry has a track record of holding onto gains, with fees for services like audits continuing to climb after major cost-cutting moves in the sector like offshoring.

“In some cases businesses are cutting costs or they’re becoming more efficient, but all the value gets passed on to the customer, which is a nice thing, but it’s sort of a race to the bottom,” he said. “In accounting, that doesn’t seem to be the case.”

For Smith + Howard, the view that AI could boost accounting stood out at a time when private equity investors had split into two camps—“those that were very excited about how AI could affect our industry and those who were very scared of how AI could affect our industry,” fearing it would reduce billable hours and therefore revenue, said Taylor.

Smith + Howard has rolled out Anthropic’s Claude companywide, allowing employees to experiment with it and suggest uses for it. That effort would likely start with automating some simple work in its core business, such as industry-specific audits, Taylor said, though complex financial statement audits would be much harder to automate. The firm is also evaluating ideas for new products it could sell to clients, and it’s searching for a C-suite executive to lead AI efforts.

The accounting firm isn’t a customer of OpenAI’s private equity venture, though Goffman said that could change as the venture hires more technical experts to expand its capacity. TPG has other close relationships with AI firms including Anthropic, Microsoft and Google.

Gauging Returns

Private equity firms and large publicly traded companies have been consolidating professional services companies for years, pushing valuations up broadly. But AI is giving some investors a fresh reason to pay up for businesses they believe the technology can help grow and make more profitable.

“We’ll pay more than the other firm because we know we can create that value” using AI, Goffman said. And firms like Smith + Howard that are growing in part through acquisitions could put AI capabilities to work in each subsequent deal, he said.

At the same time, there’s a wide range of prices small accounting firms can fetch—ones with a solid client base but few tech or marketing capabilities are fetching multiples as low as five to six times Ebitda, whereas established firms taking direct private equity backing are approaching multiples of 12 times Ebitda or higher. Smith + Howard is targeting firms that fit somewhere in the middle, Taylor said.

Meanwhile, payoffs from AI spending can be difficult to predict, and companies are grappling with how to forecast and manage the expenses of the technology. Smith + Howard, for its part, is tracking returns on investment month to month and accounting for expected costs and growth in five-year cash flow projections to determine when building in-house software makes sense.

“We are monitoring it, but we definitely feel like the return is going to be there,” Taylor said. He said the firm is no stranger to internal tech work, with its own development team that’s been automating some processes for years and that previously built sales tax compliance software for in-house and client use.

And through TPG, Smith + Howard has brought in outside AI trainers that partner with firms such as Anthropic. In return for a minimum spending commitment, they spend several weeks training employees to use the technology efficiently, Taylor said.

AI also poses a challenge for private equity owners used to cost-cutting measures like offshoring, which can deliver savings that show up quickly in financials. AI work, by contrast, requires up-front investment and could take a few years to pay off.

“In the short term, you’re actually spending money, and anyone who knows how to build AI products knows that…the pancake comes off the griddle sometimes not perfect,” Goffman said.

TPG sees revenue per employee as the primary metric for tracking whether AI is translating into gains and is still trying to figure out what other measures make sense, Goffman said. For an accounting business, for instance, it might make sense to track how many audits a given employee can do.