Merger and acquisition activity in the financial planning and accounting space is heating up with 2014 shaping up to be a year of transactions, according to Chase Corporate Advisory, who advised Financial Index on its recent acquisition of Centric Wealth.
The firm, which is a specialist adviser to mid-tier financial services and professional services firms, has a strong and diverse pipeline of deals with no shortage of potential buyers and sellers, according to Chase Corporate Advisory executive director Andrew Gale.
He said one emerging theme was the convergence of accounting and financial planning, with accountants increasingly keen to partner with financial advisers ahead of the removal of the accountants’ exemption on July 1, 2016.
Gale, who was previously chief executive of accounting dealer group Count Financial, predicted that a wave of accountants will become fully licensed to provide financial advice rather than opt for a limited Australian financial services license.
He added that accountants were more willing than ever to pay a fair price for the goodwill attached to quality advice businesses.
“Accountants have been reluctant to pay for the goodwill (in advice businesses) but that’s changing. They recognise there’s value in strong client relationships,” Gale said.
“Accounting businesses were previously prepared to pay between 60 and 100 cents in the dollar (based on revenue) but that has shifted to between 90 and 130 cents in the dollar depending on a number of factors.”
Gale said the most accurate method of calculating the value of both accounting and financial planning practices was based on earnings before interest and tax. He rejected claims that valuations had “fallen” since 2011 but said valuations had become “better defined.
While uncertainty caused by industry dynamics and the introduction of the Future of Financial Advice reforms had slowed M&A activity in 2013, Chase Corporate Advisory predicts 2014 will be a more active year.
Gale also believes independent advice will experience a revival as more institutionally-aligned advisers wrestle for greater autonomy.
“It’s inevitable in some respects and it’s all part of the industry’s ebbs and flows. There are periods of consolidation, such as 2011 when a number of large transactions where done, but over the next few years there will be a resurgence in independent, non-aligned advice and accountants will be at the vanguard of it,” he said.
