Hopefully we are coming out of one of the worst recessions in memory, but the government is warning us things will be tight for an awfully long time.
If you are looking at selling your accountancy business, it is a good time to act, according to experts.
Jeremy Kitchin and his daughter Lucinda run Jeremy Kitchin Practice M & A near Newark, Notts, which trades as APMA. Jeremy comments: There is significant demand out there in the market place. People have been holding back on selling for the past 18 months. Now things are beginning to improve, albeit only in certain market sectors, and public practice is one of those. The practices that we are selling are attracting a very good level of response.
APMA says clear signs‚ of renewed confidence began to emerge towards the end of last year. Even though Britain’s GDP has shrunk again, the trend in this specialised field is upwards.It has always been the case that there have been more buyers than sellers. Four or five years ago there was a lot of activity, but it dropped off in September 2008 for over a year, explained Jeremy. But there was a significant increase in the number of sale instructions received in the final quarter of 2010 compared with the earlier part of that year. We have had a gratifying number of enquiries relating to Spring 2011 and onwards.
Even in difficult times, good accountancy businesses do not stay on the market for long.
In 2008, APMA took on the sale of a general practice which attracted 106 would-be purchasers, while other new sales generated serious interest from 20-30 firms, with some attracting well over 30 applicants.
Experts agree that the one casualty of the economic downturn has been the first-time buyer, because banks and financiers are being more careful about to whom they will lend money. However, even this isn’t a problem, according to most of the experts.
Jeremy Kitchin says: These first-timers may currently be at a senior level in accounting, or may have gone into industry for a while and now want to run their own accountancy firms.
They have all the right credentials, but they are not seen as a good risk because they have no track record. However, the loss of the first-time buyer is being off-set by established firms who need to make up for clients they have lost or whose businesses have gone under.
Is the price right?
So if it is a seller’s market, you should be able to dictate a premium for your practice, right?
Unlikely, says APMA. Accountancy practices differ from other sectors in that there is an accepted going rate, and buyers are not prepared to pay more than that.
The current going rate is between 0.9 and 1.2 times the annual recurring fee income of a business. It dropped slightly for a while to 0.9 times the annual recurring fee income in 2007, and then it went back up, but now it tends towards 0.9 times as the bottom of the range. The last time it was higher was 20 years ago, in the late 1980s and early 1990s, when the multiple was an astronomical 2.5%!
APMA says: Historically, the multiple was around 1.2. The current trend is for prices to return to their pre-2007 level, with good quality practices with a turnover of less than £350,000 attracting multiples of between 1 and 1.15 and some above that. However, at the moment 1.2 is typically top whack for most deals.