Clockwise L-R: Steve Fine, Mark Witt, Steve Prendeville and John Birt.

Demand for advice businesses greatly outweighs supply according to experts in the advice M&A space, with relatively few advice businesses looking to leave the industry.

With a net loss of over 10,000 advisers since the start of 2019, Forte Asset Solutions director Steve Prendeville says surging demand is counter-intuitive to what many were expecting in 2022.

“Supply is still low on a historical basis,” Prendeville says. “[Potential sellers] must have thought there was going to be a heavy supply and that must have had a relatively devastating impact of valuations.”

The reality is the vast majority of industry departures didn’t have a business worth selling or one to sell at all, so there has not been a “flood of businesses” looking to sell.

“They were salaried bank advisers, accountants operating under exemptions, businesses under $400,000 [in revenue] or exposed to grandfathered revenue,” Prendeville says.

The FASEA regime has been a contributing factor according to research from Growth Focus, which found 15 to 20 per cent of businesses cited the education standards as a reason to sell.

“It’s certainly not a tsunami,” Growth Focus managing director Steve Fine says. “It’s not the mass exodus many have predicted.”

Scale up to survive

For smaller firms the rising costs to do business are a major contributing factor leading them to either merge with similar businesses or be acquired by a larger business.

Mark Witt, Practice Exchange managing director, says the cost of operating an advice business has risen so much over the last three to five years that it meant smaller firms needed to scale up to survive.

“With fixed and semi-variable costs rising so much, it’s made it uneconomical for the smaller operations to exist in the marketplace,” Witt says.

“More sole proprietors will leave the industry or will seek to merge or create joint ventures with similar firms to split some of those costs.”

Market heating up

Witt says the Covid-19 pandemic made it difficult to conduct business, but 2022 should offer more flexibility to conduct deals.