PRICE MULTIPLES REMAIN STABLE
Radar Results, M&A consultants to the financial services industry, has provided its six-monthly price guide on the value of financial planning and accounting practices. Since Radar Results lodged a Submission to Senator the Hon Arthur Sinodinos, Assistant Treasurer, regarding a decision on the issue of the grandfathering legislation and how it is inhibiting practices from moving between licensees, industry sources suggest that practice values have fallen. John Birt, Principal for Radar Results, states “Valuations have remained stable; but the effect is that since July this year many sale transactions have stalled”.
RADAR’S 6 MONTHLY PRICE GUIDE
An indication of prices as at November 2013:
Multiple of Recurring Revenue
|Investment clients 65yrs+||
2.3x to 2.7x
|Investment clients age 35-64yrs||
2.7x to 3.0x
|Risk clients (average age under 50 years)||
3.0x to 3.8x
|Corporate super clients (down from 0.8x to1.3x)||
0.5x to 1.0x
|Cs and Ds (investment and risk)||
1.5x to 2.5x
1.5. to 2.0x
|Mortgage clients (up from 1.2x to 1.7x)||
1.5x to 1.9x
Accounting fees (lower end fees up from 0.65x, top end down from 1.4x)
0.80x to 1.2x
The multiples above can vary depending on the terms offered by the vendor; actual location of the clients; client ages; and the particular investment products recommended. In relation to multiples paid for risk books, or insurance-revenue based practices, the client’s occupation, premium size, policy type and insurance companies used, are all critical. The multiples displayed above are for high-quality risk clients.
The table above is based on market activity for the last 6 months to 31 October 2013. The multiples above can vary depending on terms offered by the vendor, actual location of the clients, client ages and the recommended investment products.
Change in the price range since April 2013 has been evident in three sectors. The number of corporate super clients selling multiples has again fallen, due to the Government’s MySuper product being likely to ‘take over’ in the next few years; the number of mortgage clients has increased due to the demand for this style of client and trail revenue, with cross-selling opportunities being the main driver; and accounting fees have risen on the back of buyers’ demand. Once again, cross-selling opportunities with accounting clients, along with the ability to offer a ‘one stop shop’, are the drivers here. When a practice which is selling has a total revenue of at least $1M, an EBIT multiple may be applied to its valuation rather than a multiple of recurring revenue. Interestingly, concerns around FOFA have not lowered valuation multiples; if anything, in some states such as WA, VIC and NSW, they have increased. EBIT multiples have remained steady since FOFA was introduced and can vary from 4 times to 6.5 times, depending on the practice. More commonly, an EBIT range is between 4.5 times and 6 times.
CHOPPING UP A BOOK
What’s called ‘chopping up a book’ can often give the seller more money. Radar Results has many clients around Australia who would love to acquire part of a business. Chopping up books has become popular with sellers who find their business is too large to sell easily. Instead of waiting months, or even years, to find a buyer who wants a large business, sections of the book, like the mortgage loan trails, can be on-sold easily and quickly; allowing risk clients, investments clients and even accounting clients to be separately offered to different buyers. Generally the purchaser is likely to pay the seller a higher price for the individual sections because their appetite has been satisfied.