What is Your Business Really Worth? Alan Kenyon Kenyon Prendeville 24 th November 2006
Dec 27, 2015
What is Your Business Really Worth?
Alan Kenyon
Kenyon Prendeville
24th November 2006
Agenda
• Kenyon Prendeville’s Experience
• Valuation methodology
• Market pricing
• Key drivers for business value
• Current market
• Buyers – want/challenges
• Sellers – want/why deals fail & key success factors
• Current & future issues
• Future for buyers & sellers
• Questions
Kenyon Prendeville’s Experience
• 57 transactions
• $3.8 billion FUM
• Business value $65 million
• Averaged 35% growth in gross revenue 12 month post settlement
• 98% client retention
Valuation Methodology
Multiples:
• Financial Planning: 2 to 4 times recurring revenue
• Risk: 2.5 to 3.25 times renewals
• Accounting: 0.65 to 1 times fees
• General Insurance: 1.25 to 1.65 times fees
• Mortgage: 1.8 to 2.5 times trails
• E.B.I.T: 4 to 8 times• N.P.A.T: 8 to 12 times• Maintainable Earnings
Others:• Capitalisation• Discounted cash flow
Valuation Methodology
• Recurring Revenue 49
• E.B.I.T (earnings before interest & tax) 8
Most Used Methodology
Key
Profitability of buyers business post acquisition
Why Mostly Recurring Revenue & Not E.B.I.T?
• Internal succession
• External succession
• Additional business locations
When is E.B.I.T Most Relevant?
Summary Market Pricing
• 12month average FY 2005 3.00
• 12 month average FY 2006 3.31
• 6 month average Jan – Jun 2006 3.45
• Victoria 3.22
• New South Wales 3.12
• Queensland 3.35
• South Australia 3.48
• Western Australia 3.29
(excludes internal dealer transactions)
Transparency of Business
• Client segmentation
• Client profitability
• Service & pricing segmentation
• Product segmentation
• Client relationships
Key Drivers to Business Value
• Source of Business
• Referral relationships
• Staff profile
• Practice management / efficiencies
• Business opportunities
Key Drivers to Business Value
Current Market Environment
• 1,600 registered buyers
• 20 plus enquires for every listed business
• 3 – 4 meet vendor
• Only 2 go to due diligence post indicative offers
• Post due diligence, call for binding offers
• Enter heads of agreement
• Contract of sale
HIGHLY COMPETITIVE SELLERS MARKET
• Renovators delight
• Platformed and efficient
• Cultural fit – business opportunity
Types of Buyers
What Buyers Want
• Cross selling opportunities
• Business scale (growth)
• Economies of scale (admin)
• Platform migration
• Free cash flow after financing costs
• Profile own business
• Demonstrate prepared
• Initial meeting
- Agenda – past, present, future of each party
Last chance for first impression
Challenges For Buyers
Challenges For Buyers (Journey)
• First meeting
• Indicative offer
• Binding offer
• Sales contract
• Integration
What Sellers Want
• Transparency of buyers business/history
• Confidence – re: stakeholders – clients, staff, family
• Confidence can finance
• Business to go to next stage
• Open and honest communication
• Commitment
Why Deals Fail
• Cultural misalignment
• Unrealistic expectations
• Lack of preparation
• Owners negotiate
• Intimidation
• Timeframes
• Poor communication
• Finance
• No professional help
Key Success Factors
• Develop a strategy
• Preparation
• Realistic expectations
• Business as usual
• Flexibility/lateral solutions
• Finance in place
• Negotiable/non negotiable
• Legal advice at conclusion
• Future vision
• Professional help
• Conflict of interest
• Talent shortage
• Dealer relevance
• Westpoint
• Industry funds competitive position
• Succession
Current Issues
• Business values EBIT orientated?
• New brand competitors (Virgin, Myers, Wizard)
• Increased compliance
• Adviser margin squeeze?
• IMA’s widely accepted by HNW’s
• Advice fees not linked to FUM but service?
Future Issues
What Does The Future Hold Buyers/Sellers?
If 1 in 2 owners will exit in 3 to 5 years?
• Will the number of buyers decrease?
• Will this lead to more sellers than buyers?
• Will this mean lower prices?
• Will future valuations focus on profit not recurring revenue?
• Growth industry
• Consumers need for FP increasing
• Boutiques are moving to second tier dealer groups and forming breakaways
• IDGR’s supporting advisers to acquire businesses
• Industry change from product to advice model
• Growing number of younger, ambitious advisers
What Does The Future Hold Buyers/Sellers?
Summary
You don’t buy, sell or merge your business everyday, you only get one chance
• Get professional assistance
• Cultural “fit” and business opportunities are for both parties critical
• Success or otherwise will be determined 12 months post transaction
• Stay on track
Questions