Access To Capital is One Factor Driving Up Practice Values
In the last couple of years, the overall value of a financial advisory practice has increased. According to Todd Doherty, M&A Consultant for Advisor Legacy, there are a number of factors contributing to the rise in practice values, one of which is an increase in lending in the financial advisory space.
“Interest rates are incredibly low and there are a number of lenders in the space that weren’t here before,” notes Doherty. The increased access to capital has changed deal structures away from a focus on seller notes to lender financing. By leveraging lenders, advisors are able to pay more and provide cash up front to the seller. “We are also seeing an improvement in key practice metrics like recurring revenue and profitability,” adds Doherty. Those metrics mean practices are running better and making more money overall, which is making them more valuable and attractive to buyers and lenders.
“It’s still a seller’s market,” Doherty explains, “but with the average age of advisors steadily increasing, there will be a shift in the market.” That shift will likely bring a surplus of practices for sale, which could drive prices down again. In the meantime, buyer demand and a limited supply of practices for sale will continue to drive prices up for advisors looking to make an acquisition. Advisors who are committed to growing through acquisitions should seek out a strong lending partner with experience in the industry and a track record of lending to advisors. By having financing in place beforehand, advisors can gain a competitive advantage and confidently negotiate with a prospective seller.
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