Looking to Buy Accounting Fees?

Welcome to the May 2014 market update regarding accounting practices for sale. Please note, we only deal with practices in Victoria and some border towns like Albury.

The demand for fees in in the Melbourne metropolitan area is at record high levels. In fact, we have more than two hundred registered buyers and only a handful of practices for sale. These practices are mainly in regional Victoria with several in the Gippsland area.

Because of the massive imbalance between supply and demand we have a lot of frustrated buyers, some of which have been looking to buy for several years. Some of the impatient buyers are even offering to pay a premium price to get into the market and prices remain very solid for fee parcels of all sizes.

Historically May and June are the busiest months on the practice broking front when buyers begin to focus on their planning for the next financial year and most vendors are looking for a July 1 settlement.

Having said that, with more than two hundred buyers in the market we would expect less than ten percent of them to even get a meeting with a prospective vendor before June 30, 2014. Quite simply, the flood of baby boomers vendors is just not happening and we are seeing a lot of principals now working into their late sixties and dare I say their seventies.

On a positive note, we have had more enquiries this year from prospective vendors but I suspect these enquiries are from firms looking to plan their exit next year. A number of vendors have contacted us regarding selling this year but we still haven’t received their financial data to prepare their information memorandums. Traditionally these vendors produce the key information after the May 15 lodgement deadline and expect a quick sale. While we have so much pent up demand they get away with it but that might change in the future and we urge all principals and partners to plan their sale at least twelve months ahead.

It’s certainly frustrating with so many hungry buyers and every week new buyers are registering their interest in the expectation they will own a practice in the next few months. It’s unrealistic and rarely happens. This news is often met with some anger but our message is ‘don’t shoot the messenger’ because it is the state of the market.

In terms of hot spots, the city fringe and the south eastern suburbs of Melbourne remain the most sought after areas but there is demand anywhere in the Melbourne metropolitan area. Most buyers are looking for parcels of between $300k and $600k and prices remain rock solid in this vendor’s market.

In terms of buyers, there are 5 distinct types we have identified including:

1. Start Ups- these are young accountants in their late twenties and early thirties looking to make a start and quite often it is a partnership of two young practitioners looking for up to $1 Million in fees

2. Tuck Ins- existing firms with fees of around half a million to $1.5 million looking to acquire another practice to create economies of scale or even lock in a ‘young gun’ potential partner and give them their own parcel of fees

3. Consolidators– these larger firms are always in the market looking for quality parcels

4. Top Ups– these are an interesting group because they are generally firms with principals in their early to mid-fifties and they have hit a flat spot. They have lost clients due to retirement, business sales and natural attrition but have ten years left in them and want to replenish their client base.

5. Financial Plannersremain very interested in buying fees and they particularly want firms that don’t have an existing financial planning division or referral relationship. Unfortunately, these are the least popular buyers with vendors.

So, with so many buyers in the market how do you jump the queue and get an interview with a vendor? Well, our process starts by matching the profile of the fees for sale with the buyer’s criteria including location and size of the fee base. Vendors will generally eliminate any buyers who don’t have finance pre-approved because the banks can take three of four weeks to approve the finance and in that time a practice will often sell.

We provide the vendor with a list of qualifying candidates together with any background information on the buyer and the vendor will then do some due diligence. This often starts with a review of the buyer’s website. Vendors will just want to meet with two suitors at a time and in this market, the practice often sells without any other prospective buyers getting a look in.

It’s a tough market for buyers but if you haven’t registered as a buyer we urge you to complete the buyer’s registration form and confidentiality agreement on our website at http://www.pjcamm.com.au/services/practices-for-sale/

Finally, if you have any queries in relation to buying or selling fees please contact us today.