Private Equity - The Rise of Accounting Firms as a Strategic Partner

Introduction

Many decades ago, private equity was a niche sector that focuses on deal sourcing and maximizing leverage through buyouts. As the industry navigate through the ups and downs of the economic environment over the years, the private equity landscape has changed. Persistently high interest rates, geopolitical uncertainty, and tighter exit markets are forcing a strategic reset. As private equity plan ahead for 2025 and beyond, asset managers are forced to move past traditional financial engineering and cost containment and rely more heavily on value creation to drive returns.

Challenges Faced

Market data has shown an increase in investments and exits, demonstrating that private equity has finally caught some traction and dealmaking is slowly making a rebound. However, at the same time, a lag in fund raising has also been observed. This pattern is like the global financial crisis aftermath where rapid growth in Assets Under Management (AUM) was followed by an abrupt skid in exit activity. This results in a negative balance of distributions to contributions, causing a slowdown in distributions that caused LPs to cut back on new allocations. With the high interest rates and longer holding periods, the challenge faced by the private equity industry is that achieving the same targeted Internal Rates of Return (IRR) today will require a higher earnings growth. And technically this means that a fund will need to create more than twice the enterprise value in today’s economic environment to achieve the historical IRR. 

Faced with a new macroeconomic reality, private equity managers can no longer rely on market factors for value creation but must now place focus on operational value creation strategies for revenue growth.

The Key to Success

In today’s uncertain market environment, driving operational improvements is critical in enhancing cash flows. While acquiring high quality business continues to be essential, what will set a private equity apart is its ability to create value independent of market factors.

Operational due diligence

Creating value through operational improvements is about providing leadership and direction as portfolio companies execute on their business plans. Operational due diligence is the first step to identify opportunities to drive growth and improve margins. Executing the operational due diligence well can unfold key information that will generate topline and operational efficiency, estimate cash flow improvements and uncover the potential costs of such initiatives. 

The second step is to realign strategic priorities with a clear blueprint for growth. Private equity managers must identify the specific levers that will drive EBITDA expansion, quantify the size of the opportunity, and map out the tactical initiatives required to achieve it. 

Finally, proof of execution is critical. Successful private equity managers often start years in advance, revisiting the original value creation plan, realigning strategic initiatives, and generate preliminary results to build confidence and transparency. Ultimately, advance preparation backed with continuous monitoring will create momentum, build buyer confidence, and reinforce the asset’s growth potential, ultimately supporting higher valuations.

People

Private equity managers need to ensure that people have the right combination of skills and experience in the roles assigned to them, and empower these people to deliver the plan, improve internal processes and build organisational capabilities. Private equity managers should assess the existing operations and consider shifting to an operating model that encourages increased engagement between the team and the portfolio companies.

Private equity managers need to strike a balance in how they collaborate with portfolio companies so that the operating model is geared towards the fund’s overall strategy and objective. Is the plan to leverage on in-house capabilities or rely on outsourced specialists? And how much control do the private equity managers want to impose on the portfolio companies? Would a consultative or directive engagement work better for the respective portfolio companies? Private equity managers must now take a more proactive approach to maintain oversight on the performance of the portfolio companies, employing a team of experienced personnel able to get involved in the process from acquisition due diligence to deal close and act as stewards to the portfolio companies.

Harnessing technology for transformation 

With the implementation of operational due diligence and the employment of the right talent to drive value creation, the natural next course of action would be to consider incorporating GenAI in the operating model to streamline processes and uplift the profit margins. While the adoption of GenAI has yet to reach significant levels, lack of in-house capabilities in GenAI and inconsistent workflows across processes, are forcing private equity managers to relook into adopting GenAI in areas which are easier to tackle. Some of the back-office use cases includes deploying data analytics in evaluating deal opportunities.

Looking Ahead: Tapping on Professional Firms as a Strategic Enabler 

Private equity managers often operate as a lean team which means they may lack the expertise in various areas. As such, private equity managers are increasingly relying on external partnerships for operational tasks to be delegated to specialized service providers. This approach allows Private Equity firms to focus on what they are good at. Many professional and consultancy firms now offer services beyond the traditional realm, and these extend to strategic business advisory, big data analytics, cybersecurity and more. Some key services that can benefit private equity managers include deal structuring, due diligence, tax implication analysis. AI and automation, and business strategy, cashflow management and performance improvements. These transform firms from mere compliance providers into valued partners. Professionals also offer a combination of flexible pricing models, bespoke solutions, automation efficiencies and thought leadership. The Private Equity community can tap on these solutions to scale their operations while mitigating the risks involved.

Conclusion

The private equity industry is now operating under tighter financial conditions, more cautious investors, and increasing regulatory and operational scrutiny. These challenges are driving a necessary shift toward more disciplined execution, differentiated strategies, and long-term value creation. While the environment is more complex, it also presents meaningful opportunities. Firms that embrace innovation, focus on long-term value, and execute with precision will not only navigate this new landscape, but they will also thrive and set the pace for the future of industry.

Originally published in the Singapore Venture & Private Capital Association Guide 2026, this article features insights from Yvonne Tang, Director, Business Consulting and Deputy Industry Lead for Private Client Services Practice, RSM Singapore, on how private equity firms can respond to today's evolving market environment.