Weak supply boosting valuations: Prendeville


Financial planning practice valuations have returned to three times recurring revenue as weak supply fails to meet demand, according to Forte Asset Solutions director Steve Prendeville.
Older planners are deferring their retirement strategies due to their low superannuation balances, leading to a lack of businesses up for sale, he said.
"It's probably one of the tightest markets I've seen on the supply side. I'm receiving probably 15 buyer enquiries a week, and I cannot fulfil the demand. There are only a couple of new businesses coming on each month," Prendeville said.
Demand for planning businesses is strong - particularly for books of business worth around $200,000, he added.
But confidence among planners that revenue streams will be safe under the Future of Financial Advice reforms has led to fewer book sales, Prendeville said.
The industry in general is "becalmed" at the moment, with existing clients parked in cash, he added.
"We're still seeing very little new business being generated, as reflected in some of the platform net outflows," he said.
While valuations are at "three times or greater", highly profitable businesses can attract as much as 3.3 or 3.5 times recurring revenue, Prendeville said.
"However, large businesses must be profitable after debt servicing, and very few are taking into account synergy benefits - and that's why the demand is more on the smaller end than the bigger end," Prendeville said.
Recommended for you
Money Management examines the share price of financial advice licensees over one year to 31 March, with M&A actions in the final quarter having a positive effect for two licensees.
A $3.5 million settlement for victims of Melissa Caddick has been approved by the Federal Court following an initial agreement last December.
The Reserve Bank of Australia has delivered its first rate decision since the introduction of a new board structure last month.
Digital advice provider Otivo has launched an interactive tool, powered by artificial intelligence and Otivo’s own advice engine, to help answer client questions.