There have been a number of trends in the acquisition space over the past 12 months; subdued markets over a prolonged period have converged with increasing consumer awareness and impending regulatory reform. The result is increasing uncertainty of recurring income streams of financial advice businesses or books.
As a result a financial advice business buying a book of clients, an institution or licensee wanting to grow their dealer groups through acquisition, or a bank lending money against the cash flows of practices wanting to make an acquisition are placing a stronger focus on value.
We are now seeing a downward trend in terms of the multiples paid, as well as a shift towards multiples of ongoing profit streams and maintainable earnings. With these trends, risk is now being priced into the acquisition.
Lower quality books and businesses, with less documentation, poorer client relationships or lack of evidence around strength of client relationships, are attracting much lower multiples from potential acquirers.
The key here is keeping your business as simple as possible, so a prospective buyer understands what they are buying. In a nutshell: the less moving parts the better.
Your most likely buyer is going to be the one whose business best aligns with your platform and administration strategy, whether that is at an institutional level, or a practice that has a similar business model to yours.
So my key message is to keep it simple, find a potential seller who looks just like you (or work to towards making your business look like them), then sell or consider alternative approaches to your succession.
