analytics

The Rise and Rise of the Seller's Market

Market Data Including Selling Prices for Accounting Practices and Buyer Numbers

 

When it comes to buying or selling an accounting practice, it is commonly understood that we are in the midst of a “seller’s market”. As Australia’s leading specialist broker for selling accounting practices, DMY agrees with this viewpoint.

What does this really mean though if you are a seller, or a buyer? Historically there has been a lack of data to substantiate the notion of a “seller’s market” and which direction it is moving in.

To address this gap DMY have analysed twenty of our recent sales listings. The results are compelling proof of a rising seller’s market. The last eighteen months impacted by COVID has only served to increase the appetite of buyers looking to acquire good quality accounting practices.

Key Findings

These are our key findings for metropolitan practices:

1. They attract an average of 76 interested buyers per listing.
This is significantly higher than 18 months ago when 40-50 buyers was closer to the mark.

2.They sell for an average 110 cents in the dollar with a selling range of 100 -125 cents in the dollar.
This is at least 10 cents in the dollar higher than how other commentators are reading today’s market.

3.Only 14% of sale price, on average, is held in retention.
Despite increased uncertainty from COVID, retentions are nearly always a maximum 12 months.

For regional practices, the results are more varied, but still positive. There are, not surprisingly, smaller pools of interested buyers but selling prices remain healthy, and retention terms are more closely aligned to the individual risk profile of the practice’s clients than their regional location.

The supporting detail in relation to buyer interest, selling prices, and retention levels is provided below:

 

Finding 1: An average of 76 buyers for each sales listing

 

Note: Sales Listings are ranked in ascending order in each graph ie Listing #1 above is not necessarily the same as Listing  #1 in other depictions.

    1. The average of 76 buyers for each listing continues to grow. In early 2020 we estimate it was less than 50.
    2. Practices for sale with <$600,000 fees attract the most buyers. Listings #16-20 all fit into that category.
    3. There is no direct correlation between length of sale and number of buyers – DMY’s client with the highest number of buyers (156) was on the market for only thirty days.

 

Finding 2: An average 110 cents in the dollar selling price

 

Note: Sales Listings are ranked in ascending order in each graph ie Listing #1 above is not necessarily the same as Listing  #1 in other depictions.

  1. For metropolitan practices the selling price range of 100 -125 cents in the dollar is at least 10 cents in the dollar higher than how other commentators are reading today’s market.
  2. Firm size alone is not a key driver of sales price. The listings reflect practices with fees ranging from $300,000 to over $2 million which are evenly distributed throughout.
  3. Specific practice characteristics around client mix, profitability, location, fees per partner and operational efficiency are more important determinants of selling price.

 

Finding 3: Average 14% of sale price held in retention

 

Note: Sales Listings are ranked in ascending order in each graph ie Listing #1 above is not necessarily the same as Listing  #1 in other depictions.

  1. In a market where strong cultural fit is a fundamental criteria for sellers, retention has shown to be a more effective tool than bidding the price up for purchasers to differentiate from the competition.
  2. Three sales have been completed with zero retention – typically reflecting intense competition amongst shortlisted bidders.
  3. Only two of the 19 deals profiled above have had a retention greater than 12 month. Purchasers who want to persist with multi-year retention terms will not be competitive in most situations.

 

The Wrap

For would-be sellers…You have probably never felt busier other the last eighteen months. If you are thinking of selling, though, don’t be put off by COVID. There are plenty of active buyers, and the prospect of securing a deal with one who is a strong cultural fit for you, your clients and your team AND delivers you a strong commercial outcome has never looked better.

For would-be buyers…Be patient! Be ready to move quickly when you see an opportunity that fits your target acquisition profile, be flexible with your terms, and ready to compete. Good luck!

To discuss these findings in more detail and what they mean specifically for your situation, contact DMY’s Directors below:

 

Mark Emney

Mobile: 0434 079 530
Email: mark@dmyassoc.com.au

 

Daniel Jones

Mobile: 0401 493 773
Email: Daniel@dmyassoc.com.au