Opportunities, Risks, and the Transformation of the Consulting Industry

Until recently, German tax professional services firms were not an attractive target for PE investors: The German market was considered too fragmented, too regulated and too people-driven for external investors, despite traditionally offering a mix of stable, recurring revenue streams with long term client bases,

Recently, the market has been facing increased challenges which has opened up the traditionally conservative and self-contained industry to investors. However, only shortly after investors have identified these new opportunities, there are attempts from the German Ministry of Finance to intervene with a new draft bill from August 2025.

Current Challenges for Advisory Firms

The German professional advisory sector is highly fragmented: There are more than 53,000 tax consulting firms, around two-thirds of which are sole practices. Issues with attracting new talent and succession planning are intensifying: the number of qualified tax consultants is stagnating and many owners are approaching retirement age. Finding suitable successors in smaller practices is becoming increasingly difficult, and there is significant pressure to consolidate. With the internationalization of taxation rules and the always increasing complexity of the legal framework, smaller firms without specializations have difficulties competing for high-value work.

In addition to the structural challenges, there is an increasing need for capital investments: in order to keep up with competitors, material investments in digitalization and artificial intelligence have become necessary. In particular, small and mid-market firms struggle to raise the necessary funds for the technological transformation on their own.

In this environment, it is striking that valuations have risen significantly – EBITDA multiples of eleven and more have recently been seen in the market. This is also likely due to the fact that, as will be explained below, tax advisory firms have been recognized as attractive investments by investors and regulatory hurdles with regard to their acquisition have now been identified as manageable.

Solutions Offered by PE

PE investors can offer exit options to mitigate succession issues. By building larger, more competitive organizations through targeted acquisitions and mergers of small and medium-sized firms, they are able to leverage economies of scale and compete internationally, driving the professionalization of the fragmented setup. This creates growth opportunities in new client segments that are not available to smaller firms. PE also brings management expertise, experience in scaling business models and process optimization, thus accelerating growth and, with the scaled business models, attracting larger or more complex advisory work.

With modern structures, attractive compensation models and development opportunities, the PE-backed firms become more appealing to young professionals, counteracting the shortage of skilled advisors.

And last but by no means least, the capital provided by investors facilitates the investments in digitization, artificial intelligence, and new business models, which is essential for competing with fintechs and international players.

PE Investment Approaches

The strategies of PE investors observed in recent transactions range from the acquisition of large national subsidiaries of international networks, such as EQT’s entry into WTS, to the creation of networks consisting of many small and medium-sized firms that can later be sold as a package. Examples of this include the activities of Ufenau Capital Partners with PKF WMS or the founding of Afileon by Partners Group. This range of approaches illustrates how dynamic and multifaceted the changes in the industry are.

Investment Challenges and a New Regulatory Initiative

However, this development encounters regulatory hurdles. The so-called “Fremdbesitzverbot” (ban on non-professional ownership) currently prohibits non-professionals from holding direct shares in tax consulting firms. The European Court of Justice recently confirmed this regulation as EU law compliant.

Sophisticated investment structures had to be developed in order to facilitate a PE investment within the constraints of the shareholder limitations: Investors mostly establish a holding structure through participations in tax or audit consulting firms in other EU countries such as Luxembourg or the Netherlands, where the ban on non-professional ownership does not apply. Through these structures, an indirect investment in German firms is possible observing the legal framework in Germany is observed.

This practice is legally controversial and is viewed critically by professional organizations such as the Federal Chamber of Tax Consultants (Bundessteuerberaterkammer) and the Chamber of Public Accountants (“Wirtschaftsprüferkammer”) which have voiced warnings that such arrangements may compromise the independence and the integrity of the profession. They have taken the view that the professional independence – in particular from commercial pressure – is a legal and ethical necessity, and have called for the closure of legal loopholes to protect the independence of the profession. On the other hand, the Institute of Public Auditors in Germany (“Institut der Wirtschaftsprüfer” - IDW) has recognized that in light of the material funding needs for digital developments, a carefully regulated investor involvement may be the forward-looking approach.

There is ongoing discussion about the extent to which economic interests and professional obligations are balanced, especially with regard to the independence of advice and the handling of potential conflicts of interest. Tax consulting is traditionally a people-oriented service, where factors such as expertise, client relationships, and reputation play a central role. These intangible values are closely linked to the individuals involved and can shift with personnel changes within the firm. The transfer of entrepreneurial concepts from industry to advisory firms is viewed differently and, alongside the opportunities described, also presents challenges.

The German Ministry of Finance has now reacted to the discussion and has published in August 2025 a draft bill (Referentenentwurf eines Neunten Gesetzes zur Änderung des Steuerberatungsgesetzes) which inter alia provides that any indirect shareholders of a tax advisory company need to comply with the same requirements as the direct shareholders. They would, if enacted, effectively forbid the indirect investment by private equity firms. The draft bill was met with heated criticism. In fact, the question arises as to whether the requirements regarding shareholder and capital structure would stand up to constitutional scrutiny and be compliant with fundamental freedoms under European law. In addition, the draft does not provide an answer to the question of how to deal with already implemented participation structures (keyword: grandfathering).

Outlook

While some firms, such as WTS or PKF WMS, are seizing the opportunities and focusing on growth and innovation, others, such as Rödl & Partner or RSM Ebner Stolz, reject the entry of investors. They fear for the preservation of the trusting relationship with their clients and the independence of the profession.

The entry of PE investors into the tax consulting industry heralds a transformation within the advisory sector. The industry is facing accelerated consolidation, increasing professionalization and strong innovation pressure from digitalization and the use of artificial intelligence. Those who manage to seize the opportunities within the framework of the applicable professional and ethical standards can benefit from the changes and strengthen their position in the market. At the same time, the question remains how much influence investors may exert on day-to-day operations and how the independence of advice can be maintained. Regulation will have to keep pace to ensure fair competition and the integrity of the profession. It is doubtful whether the draft bill now presented by The German Ministry of Finance meets this requirement. If the regulatory proposal is pursued further, it will most likely undergo substantial changes.