By John Peterson
Hi again and thank you for so many personal emails regarding last weeks topic on National Firms Consolidating in the Profession. I can assure you all that my team and I will be in touch shortly with each and every one of you!
Today I met with a fantastic sole practitioner, Audit background and quality Business Services expertise. Based on one of my articles from 2012, he was worried about what sale value he might achieve and was delighted to learn that because of his profitability he would likely achieve full tote or very close to $1 for $1 when he sells next year.
However, it is incredibly important that you are realistic and understand what will drive buyer interest and market value in your favor.
Five years ago, we were seeing all-time highs with regards to professional practice trade sale values. Today, however, the pendulum has swung and the entire market has changed dramatically. This article addresses the harsh and challenging realities that many accountants and financial advisers are yet to discover as the new home truths about their market.
SO WHAT HAS CHANGED?
There are many new challenges facing your exit strategy today that simply were not there or certainly far less evident 5 years ago. Although there is some money coming back into the buy/sell market, the legacy of the GFC remains when it comes to buyers trying to apply for finance to fund their acquisitions.
The banks are still competing with governments for wholesale funding. Although the cost of funds has somewhat stabilized, the credit appetite of most banks (while promoting themselves as cash flow lenders) quickly dilute if the buyer is not squeaky clean in their credit assessment.
BUYERS OR BANKS DRIVING PRICES DOWN?
Historically the smaller “buyers” (i.e. already running their own firms and turning over less than $500K) have been very important to drive exit strategy and succession outcomes for other sole practitioners at the end of their careers.
However, the banks are now often dictating the buy/sell trading terms through their approval policies. This is extremely important to understand if you’re a seller because you may have an ideal “deal” structure in your head which the market cannot deliver on.
LESS YOUNG PROSPECTS THAN 3 YEARS AGO?
Every week we find ourselves assisting firms to re-clarify their goals and adjust their time frames because they lack talent, or the talent lacks motivation in buying the principal out. And if there is no talent in the current business, then some realistic time frames need to be established to ensure the business becomes more attractive to the buyer by implementing marketing plans and other growth strategies.
SELLERS AND BUYERS NOW FURTHER APART THAN EVER BEFORE
Bear in mind we have consulted to more than 850 x firms in the past 5 years alone. What we continue to find is that the market perception always runs 18 months behind what is really happening out there because of old war stories in discussion groups etc.