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Growth Focus

Million-dollar Advisers at a "Decision Point": M&A experts

The squeeze is on for smaller practices in 2021 according to advice business brokers, who say larger practices are pushing to fold more revenue into their business and build by acquisition.According to Growth Focus managing director Steven Fine, principals at smaller practices are at a “decision point” because margins have been eroded by increasing costs and excised commissions.

“If you’re a one-man show you’re not making the money you were two or three years ago,” Fine says. “Some of the smaller guys have been able make an acquisition but they’re up against the bigger guys so it’s tough.”

When acquirers are looking at the value of client books they aren’t necessarily put off by low-paying clients, Fine says. Some firms are better equipped to service these clients at a lower cost or willing to risk the arbitrage and increase fees.

“There’s no real cut-off point,” he says. “Some people say that clients paying under $2,500 are not profitable but we’re finding that’s not true. It depends on the acquirer’s structure and their processes and their ability to serve the client.”

It’s not only well-capitalised, high-profile acquirers that are on the hunt, Lane says, with firms at the $3 million to $6 million revenue mark just as keen to grow. “All the guys around that size are ready to roll,” he says. “A lot of them are also looking to run a more converged model by acquiring accounting and broking businesses.”

While the high-profile acquirers are often reticent to take on practices with less than $1 million in revenue, Lane reckons growing  medium-sized advice businesses are more than willing to kick the tyres on firms with as little as $500,000 coming in. “Absolutely, there’s a market for them,” he says.