Client retention high due to gradual principal transition
Client retention following the sale of 30 financial planning businesses over the last 12 months was as high as 98 per cent, according to a survey of Kenyon Prendeville sales transactions.
Kenyon Prendeville's Twelve Month Sales Transaction Survey, dated September 30, 2009, revealed that 25 of the businesses sold had client retention of 98 per cent, while the remaining five had better than 90 per cent client retention.
"In 23 transactions, vendors were continuing in an ongoing role with the purchasers, ensuring a smooth transition during the global financial crisis," the survey report stated. "Most vendors continued to work in the business to assist client retention in the difficult environment, with excellent results."
The report went on to say that this continuing involvement enabled effective client communication and maintained client loyalty.
According to the survey, client retention was also used as a means of adjustment by eight of the businesses, rather than earnings before interest and tax (EBIT) or recurring revenue.
The report stated that looking at industry trends, most businesses experienced gross revenue reductions of between 10 and 50 per cent for the 12-month period concluding June 30, 2009.
"All acquirers reported positive growth in the last three months (July to September) and believed their acquisition had them well positioned for growth. Many acquirers nominated the acquisition as the reason they were able to maintain their team structures and financial viability."
Key reasons for acquisitions highlighted in the survey were to accelerate growth strategies, scale and synergy benefits (22 of the acquirers), acquire additional skills and services (six), and to make their existing businesses financially viable (two).
The key reasons for sales included to diversify personal wealth, ill health, partnership dissolution, forced sales, and not wanting additional investment. However, 12 businesses stated that the reason for sale was in preparation of retirement or for actual retirement.
The report noted an increase in sellers coming to market in the last three months, which amounted to 12 new businesses. This was due to vendors deferring their sale rather than any change in supply or demand.
According to Kenyon Prendeville, as at September 30, 2009, the average multiple of recurring revenue was 3.46 and the EBIT range was 5 to 6.5.
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