David Hesketh, group mergers and acquisition manager of Perspective Financial Group Ltd, said consolidators and acquirers are not going to be jumping over themselves to purchase businesses which are going to take some considerable resource and investment to get them up to scratch in both a regulatory and profit-generating sense.
He said: “Any successful purchaser is not playing a numbers game when it comes to IFA practice acquisition – this is not about getting as many firms on board in as short a space of time.
“This is all about value now and potential ongoing value; it is about knowing where the business comes from and how economies of scale can be used to maximise income; it is about RDR-readiness and the resource needed to gallop into 2013; it is also about practice expertise and where it might offer something new and unique for the overall group.”
In essence, Mr Hesketh said the firm has to be in the right sort of shape and offer something tangible to the purchaser in order for an acquisition to go through.
“If it meets this criteria and both parties can agree on a purchase price and ongoing arrangement then the process itself is quite simple.”
In the current market, Alan Hudson, chairman and chief executive of discretionary wealth manager and IFA AFH Financial Group plc, said you can expect to receive somewhere in the region of three to five times the recurring trail commission.
He said these figures would vary depending on the attractiveness of the deal.
Phil Young, managing director of Threesixty Services, said multiples of recurring income tended to vary between two and four times recurring income, depending on the quality of the client bank.
Quality generally translated as persistent business from wealthy individuals, Mr Young said.
The younger the client the better, Mr Young said.
Multiples of profit tend to be more varied, anywhere between one and 10 times pre-tax profit, Mr Young said, with the average between four and eight times.
A poor economic environment will drive this down, he added.
Mr Young said: “Remember, the buyer will decide which model to use depending on the reasons for buying.”