What do Current Vendors look like?
If research is correct, we are going to experience around 52% of current practitioners, principals, partners, directors, practice owners retiring in the next five years. Furthermore, this number has seemingly increased by over 10% in a year. Such results probably aren’t overly surprising; we have been waiting for this trend for almost 20 years. However, this is a significant number and could have dramatic results on the profession. That said, as of now, the transactional market is still very much in favour of vendors with good prices being achieved and positive sales taking place. The number of purchasers remains strong, all in search of good firms or fee bases to acquire.
Vendors are tending to come in all shapes and sizes, but predominantly fall within one of the following three categories:
- The older practitioner, probably in their 60’s or 70’s, deciding it’s time to retire.There are two sub sets within this group. These vendors will typically wish to be involved in a short transition or hand over period and then be gone. However, there are also some practitioners within this group that are interested in a longer transition out, perhaps over two or three years, which may suit some purchasers better.
- A combination of older and younger partnersHere, the older partner(s) may wish to retire and transition out over a short period of time, and the younger partners do not wish to break in new partners and therefore elect to sell their equity also. In such instances, it may not be uncommon for the younger partners of the firm to be willing to commit to a further five, or even ten years, in a senior employee role within the firm. Again, this will assist with transition, although a difficulty can be for these remaining parties to remember that they no longer call the shots, well not all of them at least.
- Younger practitioners in their 40’s or 50’sThese practitioners may have other opportunities within commerce or industry and are therefore leaving the profession.
A couple of points to remember:
If you are purchasing a practice or fee base from an older practitioner, many of the clients will be around the age of the vendor. This doesn’t necessary mean the clients will all be retiring right now, but it will be important to discuss this at length with the vendor to understand the risks.
Depending on the type and style of client that you want, it will be important to consider the likely sized firm or transaction that will most likely suit your requirements. That is, smaller firms generally have mostly smaller clients.
Most transactions happen off market before any other parties become aware of the opportunity, rather than through brokers, so get you feelers out amongst your colleagues.