Last year prices paid for financial planning firms in Australia escalated. Radar Results data for 2007 revealed a high of 5.5 times recurring revenue was paid for a Brisbane CBD practice and a low of 1.8 times for a NSW country practice. The average was just over 3 times recurring revenue. The largest influence on the price paid for a FP practice was it’s location.
Supply of quality practices in capital cities still remains acutely short with Adelaide almost barren. Perth was not far behind with buyers outstripping sellers 5 to 1.
Melbourne not only has buyers and sellers evenly matched but also had the highest level of activity last year, accounting for over 40% of Radar Results enquiries.
Last year Brisbane started quietly but during the quarter ending December 2007 sellers started coming onto the market. Sydney, which has always been a sought after city for buyers, saw prices escalate rapidly during 2007 due to low supply. The last quarter has seen more FP practices in Sydney move to “sell mode”.
In some instances price differential between country and city prices is almost half. In many country regions there are no buyers at all. I know of practices that have been for sale for over a year and haven’t even received an offer.
Another major influence on price was the size of the practice. FUM of $20-30M were snapped up in a few weeks; $50-100M FUM was much slower with price expectations by the seller rather ambitious. Dealerships of any size were in big demand especially if the total advisers numbered more than 5 and up to 100. Their in-house platform was the driving force behind this demand together with added distribution through the larger network. A possible ASX listing has become a popular strategy together with economies of scale from merging practices.
Looking ahead we expect around 2000 practices to change hands in the next 4 years. That’s about 10 a week; many of which may be offered first to staff and management, then the outside market. With the average age of a planner close to 60 and nearly 4 years of sustained share market growth, advisers are starting to lock in the value of their businesses now. As more sellers hit the market and supply increases, prices will fall.
Larger planning practices will benefit from merging with the smaller ones and some will list on the ASX. Eventually the smaller planning practices will basically disappear – similar to the corner store leaving monopolies like Woolworths and Coles to survive and dominate. It should be an interesting 2008.
Radar Results will be running a national business advice seminar program for financial planners “Retire or sea change?”. It will involve how to get your practice ready for sale even if you are 5 years away from that decision. The seminar will also explain what to expect from buyers and answer all those hard questions. To register your interest just click Seminar Registration send an email to Michele Conroy with your name and address and we’ll send you and invite. If you would like a valuation then click on this link Valuation and complete the 4 minute questionnaire. We’ll send you a valuation of what we think your business is worth now. Please phone me if you have any questions on 02 4384 5670.