Financial advice practices, particularly those specialising in life insurance, are being snapped up within days of hitting the market and rewarding purchasers as much as 30% per annum.

Despite the threat of an economic downturn, the demand for advice practices has been heating up in the last financial year, according to Radar Results chief executive John Birt, who is seeing a 6%-11% increase in valuations.

Birt equates the robust demand to the current state of the housing market, where the lack of available supply is outstripping demand, thus nudging up prices. Australia’s housing market appears to be on the mend, recording the fourth consecutive gain of 1.1% in June, CoreLogic reveals, following a year-long slump.

“Similarly, when financial planning and accounting businesses go on the market, they sell within two or three days,” says Birt.

Unlike property, which generates a yield of about 5% p.a. with the hope that the capital will appreciate, Birt is seeing advice firms return between 20%-30% per year.

Risk businesses, in particular, are experiencing insatiable demand.

Radar Results, which acts as a buyer’s agent, has about 90 active buyers, some of which only want a life insurance business.

“Every time, we get a risk insurance business, it will be sold within about 24 hours,” he says.

Chris Carlin, a senior financial planner at Vista Financial Group, sold his financial advice firm Master Your Money Now in April after he made the decision to sell in mid-December 2022.

“I was really surprised how quick the process was,” he says.

Carlin founded Master Your Money Now in July 2018, helping Millennials with their first-time home purchase, insurance cover, investments, and retirement planning.

Carlin enlisted the help of broker Growth Focus, which received 40 enquiries. In the end, it came down to about six interviews. The prospective buyers had similar offers and were “extremely competitive”, Carlin says.

“They each had different nuances. Some offered to take over the lease, some didn’t. Some buyers wanted to keep the brand, while others didn’t and so forth,” he adds.

Carlin points out that selling his business didn’t simply come down to the best price. It was also about making sure he had the best cultural fit for himself and his clients.

AZ Next Generation Advisory has been on an acquisition spree. Chief executive Paul Barrett has two approaches to acquisitions.

The first is investing directly. This typically takes an enterprise valuation approach that assesses the going concern, profit and loss, and balance sheet. AZ NGA would then enter long-term earnout contracts with counterparties.

The second type is indirect, whereby the firms that AZ NGA already invests in make the actual acquisition. AZ NGA then provides the funding in the form of equity or debt or both.

“If we’re buying a firm outright, it’s more likely to be an indirect acquisition, where one of our firms buys another firm outright and look to extract synergy benefits. When we take a partial stake, that’s likely to be a direct acquisition where we want the entrepreneurs to still have skin in the game. We want to try and provide an incentive for them to keep growing and the best way to do that, we find, is to ensure that they continue to have equity,” Barrett says.

Looking at indirect deals, such as book buys and tuck-ins, multiples have remained steady in the last two years, Barrett says, ranging from 0.80x to 2.7x revenue.

“Every deal is different. Sellers have different motives for selling. Sometimes sellers want a quick sale, sometimes they want to stay on and work in the business. With the range of motives there is also quite a range in valuation outcomes,” he says.

For those thinking about selling, Carlin advises not to wait until the last minute.

“You need to give yourself a year or two. You’ve got a year or two of energy left before selling so you can do that transition as smoothly as possible,” he says.

Once the clients understood that he was sticking around and is likely to stay on and that their fees would not change, it gave them peace of mind.

“Ultimately for them it was just a name change,” Carlin says.

Barrett warns to be mindful on how much weight is placed on external opinions about an asset’s worth or whether it’s a good buy.

“At the end of the day, only the acquirer knows how that acquisition is going to help them with their ambitions, because beauty is always in the eye of the beholder,” he says.

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