Advisers who sold their firms last year got better prices and terms than those who sold in 2010, according to data collected by broker FP Transitions LLP.
The average price for a practice sold last year rose to 2.33 times recurring fee revenue, from 2.31 in 2010. The data are from the 176 deals FP Transitions was involved in last year that included the sale of all assets or stock in one transaction.
"Last year's uptick in the practice value index multiple seems to dispel any notion that independent practice values had peaked and were in decline," David Grau Sr., president of FP Transitions, wrote in an e-mail.
Indeed, the increase reflects a trend that has seen the average sales price grow every year since 2000, except for 2010, when the average price fell by 3 basis points to a 2.31 multiple. The rebound in 2011 was driven by strong demand, with a buyer-to-seller ratio of 52 to 1, the firm said.
“That's good news for those thinking about retiring, and it is also good news for the buyers investing in these businesses,” said Brad Bueerman, executive vice president and principal at FP Transitions.
In a report it plans to release Wednesday, FP Transitions said that the average deal consisted of a 36% down payment with 55% of the balance financed via promissory note and 9% through an earn-out arrangement. This improves over a smaller down payment that averaged 32% in 2010, with 21% financed through an earn-out. Earn-outs require the company to meet financial goals over a set time period, and the decreasing reliance on meeting goals could indicate more confidence in a firm's ability to continue growing.
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The 2.31 multiple paid for recurring fee revenue last year continued to be much higher than the average 1.13 for non-recurring revenue, which reflects the lower value placed on one-time charges in evaluating a firm.
The preference for recurring fees is reflected in the revenue quality of practices for sale. In the 12 years the firm has collected information, the average recurring to non-recurring revenue ratio has improved to 70/30 in 2010, from 55/45 in 2003 and 2004.
The prices ranged from $20,000 for a partial book sale to $3.2 million, and the gross revenue multiple ranged from 1.52 times to 3.25 times.
Last month, Schwab Advisor Services, a unit of The
Charles Schwab Corp., reported that it tracked 57 RIA sales last year, representing a total of $44 billion in assets under management. It did not report the prices of the deals.
