Forte Asset Solutions founder and director Steve Prendeville said despite the exit of a significant proportion of advisers last year, improving business growth as a result of the pandemic had seen practices hold their value.
“Contrary to common belief, valuations have not fallen,” Mr Prendeville said.
“This year has actually been quite a positive and affirming year for our industry – we’ve never been in greater demand, client contact has been substantial, so we’ve got engaged clients and we’ve got new clients. This is the first time we’ve really started to see organic growth come.”
Mr Prendeville added that the retirement of around 5,000 advisers in 2019 had not created as much of an oversupply of practices on the market as people assumed, as many of these had been employed by the major institutions.
“What should be remembered is those advisers were predominantly salaried advisers, or advisers that had very small income streams, and as such they never came to the open market,” he said.
“Our reality has been that we’ve got significant under supply and significant demand.”
Mr Prendeville said that while 2019 had been “the worst year we ever had” with average practice valuations declining from three times to 2.5 times recurring revenue, the COVID-19 crisis was actually forcing advisers to future-proof their businesses and improving valuations as a result.
“We’ve seen the adoption of technology [like] Zoom for instance, which has increased efficiencies but also our ability to communicate in a large and effective manner,” he said.
“This is all affirming for valuations, [because] what’s happening is better businesses are being built, more robust businesses with closer engaged clients that are showing growth. [And] there’s less participants, there’s greater barriers to entry.”
However, he added that while capital was still available to fund a business purchase, lenders were slow to process finance because of the extra demand on banks as a result of the economic crisis.
“It’s a little bit slower and that’s mainly because of the uptake in the government guaranteed SME loans,” Mr Prendeville said.
“A lot of the specialised financiers have been seconded to assist in small business loans. Offshore capital has also slowed down – that is mainly due to the Foreign Investment Review Board [scrutiny] of all transactions irrespective of size, and that will be for the next six months.”
Anyone have what Steve is smoking
Good risk books (and I mean GOOD) with solid renewals, good relationships etc have been recorded recently for 3X renewal income and one was 3.3X. These numbers make sense to me as a risk book is the most solid of all as renewal asset streams are simple and guaranteed by the life companies and not currently under threat due to locked in values under LIF. To see them selling in our group and two others I’m aware of at this multiple doesn’t surprise me at all and should continue into the immediate future due to the current uncertainty around full FP practice values reliant on fees opt-in.
Where advisers are wishing to leave the industry, dealer groups don’t want to lose revenue hence “encouraging” the adviser to sell clients to another business within the dealer group. This behaviour was being forced upon small practices by some of the larger dealer groups whom have since moved away from the banks. This is why you wont get too many FP practices for sale through brokers.
I call BS. Show me the sales evidence? Like a going to a used car salesman, or property agent who quotes a high price to get a listing. Code of ethics in your behaviour Steve?
I think Steve is unashamedly trying to drum up business.
How many business have sold in the last 4 weeks, or executed a new sale agreement.
I bet there is 0
Good risk books are currently selling for around the 2x RR mark. Anyone that pays 2.5x for any risk or fin planning book is mad.
That is because sellers are not living in the real world. You cannot expect to get 2.1 times RR on a fee for service book that will now be subject to annual opt-in. People just will not pay that and ever time I enquire on a book their starting price on those fees is over 2 times. My starting price is usually 1 times so we need to meet somewhere in the middle to get a deal done.
2.5 times? Risk maybe. Annual Opt in coming? 2 times if you are lucky.
I think you need to look at it and ask yourself, do I think I run a good business? If the answer is yes, would you sell for 2 times recurring revenue? Obviously it’s different depending on the makeup of the book, but I’ve been in the market here in Brisbane for about 2 years now, one chap wanted 3 times, the other 2.9x and I’ve since settled on a decent book for 2.6x. Valuations only stack up if a deal can be done. My Lender at NAB is still seeing many deals done at 3x and that’s the internal metric they use for vals.
Risk books are going for around 2-2.3 RR. One sold last month in Syd for 1.9x and there is currently one for sale in NSW which looks fairly good and they have said they will take 2x. No doubt there are desperate advisers willing to pay more but they are few and far between.
Its all going to 1.0x
This is completely counter to my experience. Many practices are simply unsaleable due to their legacy issues, others are very low priced and there is little buying and selling happening because the price expectations are very far apart.
Did Steve recently say that the last year was the worst turnoverwise because no buying and selling was happening?
A vendor’s agent gets paid by vendors so it would make sense to promise them the earth, then let them stew and, when they are getting desperate, to use the ‘kick in the gut’ (a real estate term where the same tactics are used) so they adjust their valuation to the market. Many such vendors won’t change agents because they have run out of time – it will be interesting to see what happens if the FASEA exam deadline isn’t extended and, if it will be, what will happen near the end of next year.
I am not saying that Steve is using any of those tactics. I am proposing a hypothetical scenario where it would make sense for a vendor’s agent to say that the market is great, regardless of the actual situation.
Similar to say, real estate agents?
The whole Industry is opaque.
Don’t be ridiculous.