Is The Glass Ceiling on Accounting Practice Prices About To Be Broken?

Business Brokering Tuesday 18th of January 2022

Accountants may be about to see the glass ceiling on practice valuations broken through as several long-held assumptions are being challenged in the post-Covid marketplace.

For nearly two years Covid has put the brakes on accounting practice M&A. Understandably, most practitioners seeking to retire have put their exit plans on hold in order to focus on helping their clients navigate the crisis.

This has temporarily deprived the accounting M&A marketplace of practices, books of fees and equity opportunities. 

Simultaneously, Covid has brought organic fee growth to a near halt. Practices seeking to grow are looking to other avenues, particularly growth through acquisition.

Not only are vendors on the move, but so are senior staff members. We have seen a rapid rise in the demand for new and more flexible employment, including self-employment through the purchase of fees. 

Limited supply and increasing demand has naturally led to the price of practices trending upwards. Buyers we’ve spoken with generally accept that this will continue into 2022.

Historically (probably since the time of Luca Pacioli) sale prices for accounting practices have been expressed in terms of cents-on-the-dollar (of fees), with this being the method adopted by banks and their valuers. In more recent times an excellent practice could expect to sell for somewhere in the $1.10 to $1.20 range.

During the Covid period practice prices have been on the increase - $1.25 is possible for a good quality practice. Higher purchase prices have been relatively rare with the exceptions being for particularly profitable practices that are also industry specialists ( for example an accounting practice that specialises in servicing medical practices).

There are other changes in the wind. In addition to the supply and demand factors, we have noticed the following:

  • More buyers are arriving in our marketplace asking for practice value to be expressed as a multiple of EBIT.
  • Interest rates remain low (for the moment at least)
  • There is a persistently short supply of practices seeking listing (again, for the moment)
  • Banks seem keen to sign up new borrowers

It will be interesting to see how all these factors play out in the coming year. Will the long-held method of cents-on-the-dollar retain primacy, or will there be a shift towards recognising practice value based on the capitalisation of earnings?

Time will tell.

Mark Witt CA

Mark is the Head of Brokering at Business Exchange with over 20 years experience and 400+ completed transactions


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