Transaction Tides are Turning

For many many years now, there has been this underlying question mark around when we are going to see the more significant departure of equity holders from professional services firms within Australia. Anticipation of this trend commenced back in the late 1990’s with the advent of the consolidators within the accounting profession. However, up until now, we really haven’t seen the peak flow of retirements. So the question is, when will we?

Some have been suggesting, and our experiences are starting to confirm this, that this change is nigh. Two more recent pieces of information suggest this that we may be on the cusp of this change. The first is based on US research which notes that the peak age for retirement is 72 years of age, which equates to the upper end of our current baby boomer generation. Thus, more business owners are increasingly reaching this milestone. The other piece of research is Australian based, but on a reasonably smaller sample size, but suggests that around 50% of equity holders within the accounting profession will be retiring in the next five years. Wow, what a figure. However, if we discount this a little in light of the smaller sample size, even if we said that this figure is more likely to be one in three practitioners, that still remains a significant number of practitioners that will be selling their practices or selling equity within their firms within this timeframe.

In the bigger picture, what does that mean to the world of transactions? Not surprisingly, this will mean a shift in the equilibrium of vendors versus purchasers. To date, it has pretty much been a vendor’s market, with most practices that public put up their hands as vendors, being snapped up pretty quickly irrespective of their firm’s characteristics or attributes, and irrespective of the transactional terms. Thus, in many instances, practices have achieved a desirable or even better outcome than what would otherwise be expected.

However, the last six months, we have started to notice some changes. We are speaking with more parties that are thinking of making this move out of equity. As more opportunities come to market, purchasers will have a broader choice, which is likely to influence transactional terms. Such changes are already being noticed in more recent deals. As a result, and in the not too distant future, vendors may not be achieving the same favourable prices, transaction terms and timeframes. Thus, for those who are depending on the capital release from the sale of their practice or equity to fund their retirement, timing is the key.

Now, I don’t want to be doom and gloom altogether, good practices will always sell. However, what I am endeavouring to highlight is that if your plans are to exit your practice in the next five years, you definitely want to be towards the start of this trend rather than being one of the last ones out the door. You will also need to do some advanced preparation and analysis to be informed about the likely value or price applicable to your proposed transaction. More practices may end up being unsaleable. Finally, you may need to leave a longer period of time to achieve the desired outcome.

What practices sold for up to now are unlikely to be representative of the future. In ten years’ time, the professions will look somewhat different to today and with the bulk of the baby boomers now retired, I expect there will be a different transactional market for professional practices.  

For further assistance with the sale of your practice or other transactional requirements, please call us on (02) 9233 4333 or e-mail broking@robknightsbroking.com.au.


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