The demand for buying IFA practices has increased rapidly.
We are receiving ten enquiries to buy for every business looking to sell or merge, compared with a ratio of four to one a year ago. To prove that acquisition is still a popular strategy, 90% of our registered buyers that have previously acquired an IFA business, would like to do so again.
Aside from the obvious cost savings they cite the main benefits of an acquisition can be found in the additional services and motivation the acquiring company can add. Often when an owner is considering retirement, or even when younger owners lack direction, they may not see existing or new clients as often as they once would. As a result business opportunities that would have previously been seized upon remain undeveloped.
When the acquiring party begins looking at client profiles and arranging meetings alongside the adviser who has the clients' trust, these opportunities are once again developed. This benefits both parties, and is one reason why companies that have bought before would like to do so again.
So what affect is this having on valuations?
We have heard that some compliance consultants, recruitment consultants and legal advisers are suggesting values have fallen to one and a half or two times recurring income due to increasing costs and a wider availability of practices for sale. We are not quite sure what hides behind their motivation for this; perhaps they are more aligned to buyers, but our experience is quite different. If any owner is considering a sale below 3 times their recurring income they have not done their homework. This may upset some buyers that know anything below this is extremely good value, and were hoping to keep this quiet. Many buyers will go higher than this for the right business.
To illustrate how the market has become more competitive, in a recent example we found six buyers for an IFA practice within the space of one week, and our client met all prospective purchasers over a two day period. Four companies made indicative offers, and after some negotiations on behalf of our client, one buyer was offered exclusivity. The sale was completed six weeks later. This was one of our quickest sales and the client was extremely grateful for the lack of disruption to his clients and employees.
The four offers were all within a 20% range from top to bottom, and not one was less than 3 times the recurring income.
Interestingly companies looking to sell or merge with a turnover of around £1m or above also have an array of choices opening up. One company we are working with at the moment will shortly be announcing a deal for this size of company for up to 6 times their recurring income. So our advice to anyone considering a sale now is to drive a hard bargain; there are plenty of serious buyers out there.
Gary Medcraff is senior partner at Brokers4sale.com.
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