Five years ago, we were seeing all-time highs with regards to professional practice trade sale values. Today, the pendulum has swung and the entire market has changed dramatically. This article addresses the harsh and challenging realities that many accountants and financial advisors 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. The ripple effect of the GFC is now in full swing, much to the disappointment of practitioners that thought they would “stay in” a bit longer and sell 2-3 years down the track.
The banks are now competing with governments for wholesale funding. This means that the cost of funds has not yet stabilized and therefore some Australian banks (whilst promoting themselves as cash flow lenders) do not have the credit appetite to “put their money where their mouth is”.
BUYERS CAN’T GET FINANCE!
Many of our clients that simply expected to borrow money from a bank to make an acquisition have suffered the embarrassing experience of finding an opportunity, agreeing on the terms, and then being told by their bank that they CAN’T GET FINANCE. The bank’s excuse is typical that it’s their LVR, the size of the deal (too small or too big) or outside the bank’s policy. Essentially a whole bunch of rubbish other than the truth, being the bank does not have an appetite for cash flow lending at this time.
SUCCESSION PLANNING CREATES ITS OWN RIPPLE EFFECT
This is, in fact, Australia’s hottest (small to medium) business topic by far. Five years ago there were more candidates looking to break out on their own and buy some fees (or a smaller firm) so they could hang out their shingle.
But as your industry colleagues (or when it comes to succession planning, your competitors) are coming to terms with their dire situation and lack of young partnership talent, every-time they make a new promise (or give a pay rise) to an aspiring employee, that further reduces the number of young “buyers” on the market that can make you an offer to sell etc.
At the time of writing this article, I had only this week met with a superb young “buyer” candidate profile. We agreed he should introduce me to his firm and assist them to navigate their succession plan rather than take him personally to the market and buy a firm externally. Another young prospect no longer in the market!
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. The reality is sellers and buyers don’t have an accurate perspective so (during the negotiation phase) this works against the parties “getting a deal done”