Acquisition mania adds value for financial planners

06 September 2006

The financial planning industry is experiencing significant takeover activity with demand for privately-owned practices so strong that buyers outnumber sellers significantly.

With such a ‘white-hot’ sellers’ market the value of financial planning practices has increased substantially over the past 18 months, a succession planning seminar hosted by Macquarie Margin Lending has heard.

Buoyant market conditions and strong demand have driven dramatic growth in the value of good financial planning practices, with prices rising by more than 20 per cent in less than two years.

“In our experience, buyers currently exceed sellers significantly, which is helping drive values up," Jason Phillips, a Macquarie Business Broking Services licensee, said.

"These conditions are creating a ‘white-hot’ sellers’ market with many financial planning practices placed on the market being snapped up quickly at very good prices.”

Mr Phillips was speaking at the ‘Plan Your Own Future’ seminar, one of a number of succession planning seminars being hosted around Australia by Macquarie Margin Lending for its financial advisers.

Macquarie Margin Lending decided to organise the seminars after receiving feedback from its advisers that succession planning was an issue of great concern to them.

“From our talks with advisers it became apparent that there was a great level of demand for information and guidance on this topic. So we decided to enlist the support of experts in the field to provide our clients with strategic insight on how they should be approaching this important and complex topic,” Peter van der Westhuyzen, Head of Sales and Marketing for Macquarie Margin Lending, said.

During his presentation, Mr Phillips discussed the conditions fuelling the value of financial planning practices, the importance of a strategic succession plan and provided tips for both buyers and sellers.

He also highlighted the emerging trend for practices to be valued on Future Maintainable Earnings rather than recurrent revenue multipliers.

“As prices of practices continue to rise, increasingly buyers are focusing on profitability as opposed to recurring revenue," he said.

"Buyers are looking for sustainable profitability, not just a book of trail revenue that has the potential to erode.

"Practice owners who can demonstrate sustainability of earnings based on EBIT are commanding top dollar in the marketplace."

Graham Peatey, the managing director of practice management consultancy, The Encore Group, who also presented at the seminar, said planning to exit a business should begin five years before it actually occurred if the seller was to achieve maximum value.

In a worst-case scenario, practice principals should take at least six to 12 months to prepare the business for sale, during which time the profile and positioning of the practice should be the focus.

“Succession planning is arguably the hottest topic today amongst planners, which is no surprise given most principals are now in their late fifties and early sixties,” he said.

“In our view it takes five years to get a practice ready for sale. You don’t just hang up a shingle on your business on June 29 and decide to sell it on June 30.

Macquarie Margin Lending is one of Australia’s leading margin lending providers with over more than 10 years experience in providing a range of gearing products including margin lending, instalment gearing and protected lending.

Macquarie Business Banking provides a range of innovative finance solutions to assist financial planners, including cash flow lending for business growth and acquisitions, succession planning assistance, Macquarie Business Broking Services, leasing, premium funding, and performance bonds.

The Encore Group provides expert independent advice on the development and delivery of practice management services for the financial services industry, including advisory businesses, dealer groups and institutions.

Macquarie Margin Lending’s Succession Planning Seminars will be held in Brisbane (September 5), Sydney (September 6), Melbourne (September 7) and Perth (September 8).

For further information, please contact:

Suzanne Houweling
Senior Media Manager
Banking Division
Tel: 61 2 8232 7029
Mobile: 0410 499 034

Kathryn Illy
Marketing Manager
Macquarie Margin Lending
Tel: 61 2 8232 9592