Acquirers gaining the upper hand: Lowinger
The average retention payment agreed to by parties in financial planning practice transactions has crept up to 26 per cent over the last year, according to NAB head of financial planning banking Daniel Lowinger.
The statistic was one of the findings from an internal survey NAB conducted in relation to the last 100 financial planning business acquisitions it funded over the last 14 months, said Lowinger.
The 'retention' payment is the percentage of the purchase price the buyer is willing to pay in one year's time, and is dependent on key clients remaining with the business.
Lowinger noted that the typical 80-20 arrangement was drifting towards a 70-30 split, which indicated that acquirers "potentially have the upper hand".
"Once upon a time you probably couldn't get a 70-30. Whereas now there's a bit more flexibility being provided by some vendors in order to sell the practice," he said.
The NAB survey also found an average valuation of 2.73 times recurring revenue, according to Lowinger.
Nine per cent of the transactions saw a valuation of between two and 2.5 times recurring revenue, and 63 per cent of the practices sold for between 2.5 and 3 times, he said.
The 100 planning practice transactions included in the NAB survey cover a "broad range of businesses", Lowinger said.
"The majority of our lending book are not NAB-aligned planners. They're from [a variety] of dealer groups - and the self-licensed space also forms a large part of it," he said.
There has definitely been an increase in financial planning practices for sale over the last quarter, said Lowinger.
"The last 12 months has been a lot busier on the acquisitions front than it was in the previous year," he said.
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