![]() ![]() Admittedly, the acquisition process may be spread over five or so years, but, then again, these figures could be conservative.Ĭan the market absorb such a high rate of churn? The answer may lead to acquirers offering lower buyout values. If there are 2,500 firms with fees of between £500,000 and £2m a year, and 30% of them have no succession, with the partners looking for an exit, then there is a potential cumulative fee churn of £750m (with average fees assumed to be £1m a firm). If the 40 biggest accountancy firms outside the top 10 make on average two acquisitions a year, buying up practices with fees of, say, £1.5m a year, then there is a cumulative fee churn of £120m. The capacity of the market to absorb fees through acquisition or merger is currently limited for a number of reasons. A consistent succession policy gives a firm a distinct advantage whether preparing for sale or the introduction of a new partner. Having a succession plan in place is wise and continuity is valuable. ![]() The demographics of smaller firms (one to four partners, many of whom do not have in-house succession) are likely to generate a significant number of sellers over the next five years. The following considerations are likely to affect the valuation of practices. Such a disparity should be reflected in the valuation. With a £1m-fee practice, some potential buyers could be looking at a 40% return and others a 20% return. Purchasers raising funds for an acquisition would not base their application on top-line turnover, and most accountants would advise their clients of a more professional and commercially acceptable approach. The profession has long embraced valuations based on fees rather than profits, yet the formula is strange and ill-advised as a sole measure of value. What is your practice worth? The answer for some time has been: between 80% and 120% of annual fees. This article was first published in the October 2016 UK edition of Accounting and Business magazine. An introduction to professional insights.Virtual classroom support for learning partners.Becoming an ACCA Approved Learning Partner. ![]()
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