Biggest firms drive toughest bargain in M&A deals
Selling out to one of the 100 biggest practices is likely to see a lower price than to one of the next tier, claims Retiring Accountant
SMALL PRACTICES selling to the traditional ‘biggest’ firms do not always get the best price for their practice, according to consultancy Retiring Accountant.
In a white paper released this week, it was revealed the average offer value from small to medium tier practices is 1.16x gross recurring fees for practices with turnovers below £450,000. Top tier firms, the biggest 100, generally offer lower multipliers due to their internal structure of partner remuneration and premises overheads, the report found.
Sellers with up to £450,000 turnover are likely to get a multiplier of 0.96x gross recurring fees from a top?tier practice with turnovers exceeding £5m, while from an unpublished firm they are likely to get 1.19x gross recurring fees, Retiring Accountant stated.
The average sale price for firms between August 2013 and August 2014 was £339,941, the report found, with prices varying significantly from region to region – the cheapest in Northern Ireland, where prices were around £116,000, while in the north east, sales were made in the region of £850,000.
Vendors, the report said, are keen to maintain the culture of their firm after acquisition and do not want lose their unique identity in a multi?million pound, multi?partner larger practice. And as such, there is a desire for some to be acquired by smaller, established independent firms.
Prices, though, have remained rather static, it claims, after the improvement in the economy and cheap loans. That said, that uptick has could dampen the overall demand for acquisitive activity, with firms preferring to spend their cash on business development.
Effective client management is particularly important for firms at the smaller end of the market, with Retiring Accountant noting several firms with ageing managing partners inadvertently losing clients after failing to flag up their succession plans.
Similarly, firms are casting their net further geographically, both in terms of clients and in the acquisition of other practices.
By the same token, though, developing a strong niche encourages organic fee growth.