Advice businesses are currently in a buyers’ market for the first time in Australia’s short financial planning history, according to M&A consultants AZ NGA.
According to its new report, Deal or no deal, this is largely due to recent transactions within the advice space and the growing number of practices for sale.
Recent transactions that suggest broader market sentiment, according to AZ NGA, include the sale of Count Financial to CountPlus for $2.5 million and Fiducian Group’s $3.5 million purchase of MyState’s financial planning arm.
One of the first things the report suggested for potential buyers to consider is determining whether they are a value or growth investor.
“Growth investors look for premium assets that exhibit above average growth. They usually come with a premium price tag,” the report said.
“Value investors, on the other hand, typically look for undervalued or mispriced assets that need a bit of work.”
Based on its own experience, AZ NGA said most of its clients act as both growth and value investors, of which the current market presents opportunities for both.
“Public information on sale prices and terms is hard to come by but valuations have generally come off in the past year,” it said.
“Having said that, to participate in this market, buyers need to be cashed-up because while interest rates are ultra-low, access to capital is constrained.”
For practices on the sell side, AZ NGA said it has learned that, over the past five years, the highest bidder doesn’t always end up closing the deal.
“The main reason for that is access to finance. Quite often they just can’t get the money in time, or at all. This creates an opportunity for the second and third in line. This pattern is becoming so common that sellers are increasingly skipping straight to the under-bidder if they know they’re good for the money,” the report said.
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