Planning practice valuations are holding up despite industry uncertainty over government reforms, but buyer of last resort (BOLR) agreements and availability of growth finance are the keys to future pricing, the head of a practice brokerage has said.
“BOLR has underwritten the value of practices for the last decade and nothing we have seen in the institutional licensees suggests the price or terms will be altered,” Centurion Market Makers director Chris Wrightson said in a report.
Wrightson said Centurion believed about half of Australia’s financial advice practices had access to a BOLR arrangement.
“In reality, very few exercise the right as it is usually possible to achieve a better price and better terms in the open market,” he said, adding sellers usually fetched better prices on the open market.
He said the government’s Future of Financial Advice (FOFA) reforms had not pressured BOLR prices lower, but Centurion was keeping a watching brief on the arranagements.
“I can’t imagine in an increasingly competitive environment that any dealership head is going to adjust BOLR pricing. That said, we do keep a close eye on BOLR arrangements. If there is one factor that will cause a revision of prices in the open market, it is one of the major institutional licensees adjusting BOLR pricing down.”
In April, when AMP Group completed its takeover of Axa in a $14 billion deal, AMP sweetened BOLR arrangements by improving on the traditional measure of a multiple of recurring revenue, basing the new arrangements on the total revenue of a practice, albeit at a slightly lower multiple in many cases.
Meanwhile, Wrightson said the transactions were robust.
“Our experience since November last year is that enquiry is up some 30 per cent and transactions that were frustrated through the withdrawal of lenders in mid-2010 have completed,” he said.
“The confidence among buyers remains high as there is no change to the view that financial planning is a growth business.”
