110 Cents is the New "Dollar in the Dollar"

DMY's latest release of Market Data, relating to our twenty most recent transactions, is below. 

We will continue to publish this every six months consistent with our mission of being recognised as the leaders in educating the market on buying and selling practices through the deep use of data and sharing our unique experience and perspectives.

Key Findings

These are our key findings for metropolitan practices:

1. They attract an average of 76 interested buyers per listing.
This has remained consistent with six months ago (77 buyers) and still significantly higher than pre-COVID when 40-50 buyers was closer to the mark. There is no direct correlation between length of sale process and number of buyers. Previously we would have said smaller firms consistently attract a higher number of buyers but this is no longer the case - for example one practice of $1.5 million in fees attracted 89 buyers. Sydney has been a quieter market than Melbourne and Brisbane over the last 12 months so it was not surprising to see 131 buyers register interest in a $750,000 practice in Western Sydney.  This high volume of practices also brings a high diversity of buyers for a seller to shortlist from. As one client said to us recently: "I have been pleasantly surprised and pleased at the number and quality of people we have been able to meet. They are all different which gives us some really good options."

2. They sell for an average of 110 cents.
The average price is slightly higher compared to six months ago (109 cents). Significantly, fourteen of the seventeen metro practices sold for more than 100 cents in the dollar which confirms our view that "110 cents" is the new "dollar in the dollar". The broad extent of the range reinforces the importance for sellers of having their practice independently appraised or valued using a robust methodology to avoid leaving money on the table. Specific practice characteristics around client mix, profitability, location, fees per partner and operational efficiency continue to drive value up or down.  Very good practices, particularly where there is strong competition, are going for up to 130 cents in the dollar, with larger practices selling on a multiple of earnings.

3.  17% of the sale price, on average, is held in retention, with 15% remaining the most common amount.
This is higher than six months ago (14%) and has been consistent now for a year.  Consistent with selling prices, the broad extent of the range from 10% through to 30% reinforces the need for both sellers and buyers to focus on the specific risk profile of the fees being acquired, and the transition role of the Vendor in supporting client retention.  Pragmatic sellers with higher risk client portfolios are recognising they need to be flexible on retention while sellers with less risky books, or mitigating factors, are holding their ground to agree lower retentions. Conversely, smart buyers, once they can see a strong cultural fit with the seller, use retention as an effective negotiating tool to differentiate from the competition. Buyers who insist on a high, multi-year retention without specific logic continue to miss out.

For regional practices, the results remain healthy.  Interestingly, sale prices average 109 cents in the dollar which is only fractionally below their metro equivalents, and there are 32 interested buyers for every listing which is good sized pool to find the one buyer with the right cultural fit. Retention terms are more closely aligned to the individual risk profile of the practice’s clients than their regional location and it is interesting to see three regional practices with retention terms all below the average of 17%.

The supporting data is provided below:

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

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

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.

Finding 3: Average 17% 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.
Only 19 listings are featured as one was subject to an alternative structure.

The Wrap

For would-be sellers… numbers of buyers and selling prices are healthy.  If you have a good quality practice you should feel confident of achieving a successful sale, with a strong commercial outcome and a good new home for your clients and team. Don't take it for granted though and be attuned to what's most important to your preferred buyer.

For would-be buyers…a good understanding of the market, patience, empathy and flexibility are all important. Cultural fit will get you a seat at the table but you will need to be commercially sharp and attuned to what's most important to the seller if you want to secure that prized acquisition. 

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

If you would like to see more Market Data, check out our recent article on the Profile of a Seller where we take a closer look at who is selling and why. There are some interesting nuances to this and we are seeing practice owners looking to sell much earlier in their careers and for reasons other than the stereotypical retirement.

Mark Emney

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

Daniel Jones

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