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.

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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.”

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I wouldn't blame Covid for this. The market works on supply and demand. No new advisers = no demand. Lots of advisers retiring or exiting = over supply. Duh! Plus what isn't mentioned is the insulting numbers being offered by the carpet baggers that are out in full force. No thanks, I won't be selling.

why do you need to sell. why don't you seek out someone who is an appropriate fit for your business and that could be your succession plan. you can just sit on the board as a consultant.

How can there be 51K+ advice businesses for sale when there are only 22,284 advisers? As reported in Money Management as of 5 November 2020.

Agree, don't understand those numbers.

My thoughts exactly!

Agree. Just another no-name trying to promote themselves.

The paragraph is poorly written. The average value and number of businesses for sale quoted in the article relate to all privately owned businesses, not just financial planning businesses. This is then extrapolated out to have some application to financial planning businesses. The heading makes you think they're only talking about financial planning but the figures quoted are broader than that.

It sounds like an article sponsored by Matthew Rowe.

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