What’s going on at Grant Thornton?

What's going on at Grant Thornton?

Grant Thornton has announced the layoff of 350 employees, equating to approximately 3.5% of its U.S. workforce.

This latest round of job cuts comes on the heels of two previous rounds in 2023, where the firm let go of 300 and 200 employees, respectively. The latest reductions span across the firm’s advisory, audit, and tax practices, up to the level of managing director.

According to the Wall Street Journal, the firm has cited “evolving demand in select business segments” as the primary driver behind these targeted staffing adjustments. Grant Thornton has emphasized that it continues to invest and grow its team, and is on track to deliver another fiscal year of strong performance.

However, the timing of these layoffs, coinciding with the firm’s impending private equity deal, has raised eyebrows within the industry.

Preparing for a Private Equity Takeover

The impetus behind Grant Thornton’s recent restructuring efforts can be traced back to its plans to sell a majority stake to New York-based private equity firm New Mountain Capital. The transaction, which is subject to regulatory approval and other standard closing conditions, is expected to be finalized in the second quarter of 2024.

This move towards a private equity-backed structure is not unique to Grant Thornton. Across the accounting landscape, firms are increasingly exploring alternative practice models and seeking external investment to fuel their growth and adaptability.

The partnership with New Mountain Capital is expected to provide Grant Thornton with the resources and strategic guidance to navigate the evolving industry landscape.

Shifting to an Alternative Practice Structure

Alongside the private equity deal, Grant Thornton has also announced a significant change in its organizational structure.

Effective once the private equity deal has closed, which is expected in Q2, the firm will transition to an alternative practice structure, with Grant Thornton LLP providing attest services (such as audits and assurance) and Grant Thornton Advisors LLC handling business advisory and non-attest services.

This restructuring aligns with the industry’s broader trend towards specialized service offerings and the separation of audit and non-audit practices. By creating distinct entities for these functions, Grant Thornton aims to enhance its operational efficiency, strengthen its compliance, and better serve the diverse needs of its clients.

Delayed Start Dates for New Associates

The changes at Grant Thornton extend beyond the firm’s internal operations. Some incoming associates have reported that their scheduled October 2024 start dates have now been pushed back to January 2025. This delay is likely a result of Grant Thornton’s recent decision to align its fiscal year-end from July 31st to December 31st.

The shift in the firm’s fiscal calendar may have necessitated a recalibration of its onboarding processes and resource allocation. While this delay may be inconvenient for the affected associates, it underscores the broader organisational transformations underway at Grant Thornton as it navigates the evolving industry landscape.

Broader Trends in the Accounting Sector

The challenges faced by Grant Thornton are not unique to the firm; they reflect a broader trend within the accounting industry. Many of the largest accounting firms in the U.S. have been grappling with a downturn in demand for services like advisory, driven by factors such as high interest rates and a shaky economy.

This has resulted in widespread layoffs across the industry, with firms like EY, KPMG, and Crowe also announcing significant workforce reductions over the past year. The accounting profession is being forced to adapt to these shifting market dynamics, with a greater emphasis on specialization, operational efficiency, and strategic partnerships.

The involvement of private equity firms in the accounting industry, exemplified by Grant Thornton’s deal with New Mountain Capital, represents a shift in the sector’s landscape. Private equity investment can provide accounting firms with the capital, expertise, and strategic guidance needed to navigate the complexities of the modern business environment.

However, this shift also raises questions about the potential impact on the firm’s culture, decision-making processes, and the overall client experience. Balancing the demands of private equity investors with the firm’s commitment to professional integrity and client service will be a critical challenge for Grant Thornton’s leadership.

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