Deferrals of practice sales could drive oversupply
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A current trend to defer the sale of planning businesses until the next bull market could result in an oversupply in the market in future years, according to consultant Kenyon Prendeville.
Director Alan Kenyon said many proprietors were deferring their exit due to the need to effectively manage client retention, but also in the belief that lost value could be regained with the next sustained bull market.
“Within that assumption lies the problem for the demand/supply equation, however, as the sellers are not alone in deferring the sale of their businesses.
“We may see the demand/supply equilibrium move from a sellers’ market to a buyers’ market in future years with this deferral and the growing age demographics of proprietors.”
Kenyon said there had not been a large number of business owners moving to sell their businesses and while this remains the situation, demand still significantly outweighs supply.
“However, older business owners may well decide to sell when markets improve significantly, and then will we see the supply and demand equilibrium change.
“This could see a movement of multiples downward, as well as a greater buyer focus on profit valuations, although this situation may still be three to five years away,” he said.
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