Market Commentaries

Weak supply boosting valuations: Prendeville


Author: Tim Stewart

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.