Plenty of buyer demand as financial planning practice valuations hold up
There is plenty of demand in the market for quality financial planning businesses, as well as an increasing number of enquiries from those looking to sell in preparation for whatever Future of Financial Advice (FOFA) reforms may bring.
The managing director of practice sales consultancy Kenyon Partners, Alan Kenyon, said his business is seeing strong buyer sentiment, particularly out of Queensland, with offers for some businesses of 3.3 times recurring revenue and up to six times EBIT (earnings before interest and tax).
There are also more high quality businesses coming up for sale in the $2 million to $6 million range, he said.
"We're seeing demand from those wanting scale and other business opportunities," he said. Many business owners are looking to diversify their revenue streams in the wake of the global financial crisis, he added.
FOFA is having the greatest impact in the area of client book sales rather than practice sales, as practice owners look to prop up businesses prior to the introduction of new reforms and add revenue to the top line in the hope that it will filter through to the bottom line.
Sellers who would otherwise have been looking to come to market around the time of the GFC, but were able to defer, are gradually coming back to the market.
However, they might still be waiting to see what the implications of FOFA will be, and be holding out for the right time to sell and looking at their succession options, Kenyon said.
He said valuations hadn't really declined since the GFC, in spite of FOFA. "The revenues took a hit - not the multiples," he said.
Plenty of businesses are still selling at or over three times recurring revenue, while client books are going for 2-2.75 times recurring revenue, Kenyon said.
Bendigo Wealth senior manager - Business Partners Program, Joshua Parisotto, said he is seeing a lot more enquiries at the moment, largely from those looking to prepare their businesses for sale once there is more certainty around FOFA.
Most of the sales Bendigo Wealth has been involved in have been priced on EBIT rather than recurring revenue, and ranged from around four to six times, he said.
Both Parisotto and Kenyon said the key factor in preparing a business for sale is improving its back-end efficiency, where the biggest and easiest gains can be made - for example, by getting all the back office systems in alignment.
General manager of independent dealer group Premium Wealth Management, Paul Harding-Davis, said he also hadn't noted any impact on prices due to FOFA.
He said a number of practices might be coming up for sale involving people trying to get the transition done now, because they don't want to go through another two years of change and regulation - although there might still be many adopting a 'wait and see' approach, he said.
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