The wave of consolidation in the German tax consulting and auditing sector is in full swing. More and more professional services law firms are merging or being taken over. International financial investors in particular have targeted the fragmented German market. A recent example: British private equity fund Cinven is joining Grant Thornton Germany — one of the top 10 auditing firms with a turnover of 249 million euros — as the majority owner. The auditing business is considered crisis-resistant with stable cash flows, and the high number of competitors creates enormous consolidation potential — a combination that financial investors can hardly resist.
Private equity investors are driving consolidation
Grant Thornton Germany is one of the ten largest auditing firms on the market. The entry of Cinven — an international financial investor — is a prominent example of the current wave of consolidation.
Financial investors such as KKR, Silver Lake and Partners Group are currently massively entering the previously small-scale and heavily regulated market for tax consulting and auditing in Germany. Although earlier a ban on third-party ownership effectively ruled out foreign investments, investors are now finding legal structures to still get involved. For example, KKR financed the succession to the German market leader ETL through a holding structure without formally violating participation rules. Such new paths pave the way for investors to enter a market that was long regarded as immobile.
The result: Large private equity firms are launching the market with buy-and-build strategies. The Swiss Investor Partners Group, for example, has already bundled 20 major tax firms in Germany under the umbrella brand Afileon and is aiming for a turnover of €500 million by 2027. Together, such groups form powerful units that utilize economies of scale: Investors usually acquire law firms in the single-digit to double-digit million turnover range and combine them under one holding roof. Central functions — such as recruiting, IT infrastructure, compliance or brand presence — are being standardized in order to increase efficiencies. Standardised processes and software reduce costs and thus increase the value of the group. In addition, there is the potential of new technologies such as generative AI, which can be exploited through extensive investments. All of these factors are driving consolidation forward at full speed.
Opportunities for medium-sized law firms
This development opens up significant opportunities for medium-sized tax consultants and auditors. On the one hand, the consolidation market provides attractive law firms with excellent valuations and thus lucrative exit opportunities for donating owners. On the other hand, a strategic partner can make it easier to finance digitization, AI and growth. In the case of Grant Thornton, for example, the Cinven merger provides the company with fresh growth capital and access to technological know-how, such as to introduce digitization and artificial intelligence more quickly. Many private equity investors emphasize that they are helping their investments expand into new business areas and attract top personnel.
Another aspect is solving succession problems. With an average age of over 53 years among tax advisors, there is a generational change in numerous law firms. External investors can enable orderly succession planning here — as the example of ETL/KKR shows, where the founder's departure was absorbed by financing a management takeover. For law firms without an internal successor, the sale to a larger group offers the assurance that their life's work will continue and that clients will continue to be well served.
In addition, medium-sized units benefit from scale and network advantages in a larger network. Centrally organized areas (personnel, IT, etc.) relieve partners of administrative tasks. At the same time, attractiveness as an employer is increasing: Larger units with a modern set-up are better able to attract and retain talent. In fact, industry observers see an advantage of private equity entrances in particular in the push for digitization and greater attractiveness for young talent.
Of course, the development is not only viewed positively. Traditionally, the industry places great value on independence — critics fear that external investors are too focused on profit and that smaller clients could be neglected. These concerns must be taken seriously, but in light of strong competitive and innovative pressure, market consolidation appears inevitable. The majority of industry insiders expect consolidation, driven by increasing demands and staff shortages. In addition to traditional individual practices, larger law firm groups and investor-driven corporate associations in particular will shape the market in the future. In this environment, medium-sized law firms should look more closely at opportunities than risks.
Five core KPIs: What makes a law firm target attractive?
Investors are examining potential takeover candidates exactly how sustainable and efficient they are. Five central performance criteria (KPIs) have emerged:
Level of digitization: A high level of automation and digitization of law firm processes (e.g. digital bookkeeping, cloud-based workflows) signals efficiency and scalability. Consultations that focused on digital innovations early on are already creating sustainable competitive advantages today. A digitally advanced company is easier to integrate into a larger platform and enables rapid cost synergies.
Use of AI and automation (margin profile): The use of artificial intelligence and software robotics for repetitive processes (such as accounting, document processing) improves the margin profile. Together with AI tools, employees can work significantly more productively — for example by allowing automated processes to serve more clients at the same time. Law firms that are leading here generate higher turnover per capita and therefore attractive profits. Accordingly, around 80% of consulting firms are closely monitoring the possibilities of AI, and experts are sounding the alarm among the few who are not yet doing so.
Management's willingness to transform: For financial investors, it is crucial that the partner and management team is open to change. The willingness to question proven processes, introduce new technologies and contribute to organizational adjustments is a must. Private equity owners often bring in their own best practices — from centralized controlling to modern marketing — and expect management to support them. Law firms that focus on increasing efficiency, digital innovation and strategic realignment even before a transaction is made are considered particularly attractive partners.
Turnover per employee: This KPI provides information about the firm's productivity and value creation rate. A high turnover per capita indicates efficient processes, a high proportion of consulting (instead of purely standardized activities) and good use of technology. Investors use this value to make companies comparable and to estimate synergy potential. For example, platform strategies can often increase revenue per employee by centralizing or automating standard work.
Age structure of the workforce: Demographics also play a role. A relatively young team signals development potential, long-term availability and a high level of affinity for technology. An outdated team of partners, on the other hand, can mean a clump risk — if several partners leave shortly after a takeover, important know-how is lost. On the other hand, law firms with a very high average age are often ready to sell because the owners are planning their retirement. The average tax advisor in Germany is over 53 years old — so many law firms are facing a generational change anyway. Investors prefer targets that have both experienced partners and a motivated second level of management on board to make the transition smooth.
Conclusion: Now is the right time for M&A
The developments clearly show that there has hardly ever been a more attractive time for tax consulting and auditing firms in Germany to consider M&A options. Consolidation is taking place very dynamically — driven by favourable capital supply, technical upheavals and the need for size. International investors are actively looking for strong medium-sized law firms as takeover candidates. At the same time, such partnerships enable local units to benefit from capital inflows, state-of-the-art technologies and a larger network. Anyone who sets the course early on and gets their house in order (keyword digitization, organization, KPI optimization) can achieve excellent conditions in this market situation.
In summary: Rarely have the chances of taking a successful step through a merger or sale of one's own law firm have been as good as today. Should your own strategy include such an option in the future, now is the time to seriously examine it. Because the wave of consolidation is rolling — and it is likely to change the face of the industry in the long term.
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