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October 14, 2011 at 11:11 AM
Marketplace demand for advisory practices is rising, said David Grau Sr. and Jr., while prices for practices are slipping. Speaking Friday at the Fusion Advisor Network national conference in Las Vegas, the two principals of FP Transitions, which runs a matchmaking service for buyers and sellers, pointed out that advisory practices are still selling at higher multiples than other professional practices, such as architecture or medical practices.
As part of the Graus’ presentation, Fusion subsidized firm valuations for 17 Fusion practices that were delivered during the conference (FP Transitions’ usual cost for a valuation is $1,095), which Grau Jr. used as the basis of a comparison between the average Fusion practice and its peers.
For example, some 94% of the 31 Fusion practices that FP Transitions has done valuations for over the years use a CRM system (not Microsoft Outlook), a much higher percentage of its peers (determined by annual GDC), and that high adoption rate is just one of the positive metrics that FP Transitions uses in its valuations.
Among the other metrics that add value to a practice, Grau Jr. said, were:
- A higher number of licensed employees in a firm;
- A greater amount of client contact;
- A higher amount of recurring revenue;
- A greater amount of client affluence.
The factors that can detract from a firm’s value, he said, were:
- A lack of nonsolicitation agreements for employees;
- A higher-than-average client age, such as when the average age is in the 65-70 range;
- A greater amount of asset concentration among clients, such as when a firm falls prey to the Pareto 80/20 rule;
- The amount of personal branding, such as when a firm’s name includes the principal’s name.
Grau Jr. said that it can be a positive or negative for a potential buyer when a firm has a strong niche, even if it helps the firm’s annual bottom line.
