While the global financial crisis has negatively impacted the revenues of a number of financial planning businesses, the effect it has had on multiples for practices looking to sell has attracted conflicting opinions.
Radar Results principal John Birt told InvestorDaily that multiples for financial planning businesses had indeed decreased and had been too high over recent years.
He said since the global financial crisis, multiples had declined for several reasons including the move to fees from commissions, clients being more cautious with their purchases and due diligence processes being more thorough.
“The average multiple at present is between two and three times recurring revenue and on an EBIT (earnings before interest and tax) basis probably around 4 to 5 times,” Birt said.
Kenyon Prendeville director Alan Kenyon said while most businesses had experienced drops in revenues and profits, multiples of EBIT and recurring revenue hadn’t changed and were in fact as strong today as they had ever been.
“The average multiple is certainly 3.5 times recurring revenue and certainly six plus in terms of EBIT,” Kenyon said.
Multiples hadn’t changed because supply and demand hadn’t really changed, he said.
“We’re not seeing a mass exodus of businesses that are for sale,” Kenyon said. “Kenyon Prendeville continues to have 12 to 15 businesses at market at any one time and this is consistent with the last five years.”
Kenyon said he did not expect multiples to change until such time as supply and demand changed, which could be anywhere from three to five years away.
