Lockdown lowers adviser business valuation
Australian lockdowns are likely to send a recovering financial adviser mergers and acquisition (M&A) market into reverse as owners realise the lockdown will negatively impact their business’ valuation.
The average value of a small privately-owned business was $605,079 while the number of businesses for sale had increased from 51,516 in March to 54,536 in June, according to Succession Plus. However, this was likely to have fallen since as lockdowns came into force several weeks later.
Advisers had previously complained about the lack of viable businesses for sale despite the large numbers of advisers exiting the industry in light of increased regulation and compliance as well as educational requirements.
Craig West, chief executive of Succession Plus, said: “There was more activity in June but the likelihood of firms being able to transact in lockdown is low as banks aren’t not lending.
“There is a risk of people being stuck, they might have put their business up for sale but, in lockdown, that’s been postponed and cancelled now or they are finding the sale price is lower than they expected.
“They might have wanted that money to fund their retirement but now they are finding they have to work longer for an indefinite amount of time.”
Some business owners were opting to retain their businesses but to cease giving advice until the economic environment was more stable but they would likely have to pay the remaining advisers extra for the work in their absence.
“Often the owner will keep the business but stop giving advice but then the other advisers want equity in the business and need to be paid differently,” West said.
“They don’t want to see the owner not giving advice and just reaping the profits.”