Demand for Accounting Practices Remains Strong

Published May 2024

DMY's latest six-monthly release of Market Data and Insights is below. Our data set includes thirty recent practice sales^# going back to April 2023 as well as the key trends from our last six Market Data releases going back to 2021.

There are no shortage of competing opinions when it comes to the price a practice can fetch, how easy it is to sell, and what is "standard" when it comes to key commercial terms such as retention. Through the deep use of data and insight, DMY aim to help sellers and buyers cut through the noise and build their knowledge to create a more efficient and transparent market for all parties.

We are proud of the reputation that we have built over the last four years as the most comprehensive and trusted source of market data and fact -based insights on buying and selling accounting and bookkeeping practices.  If you are serious about successfully buying or selling, educating yourself on the market is key. Enjoy the read and let us know what you think. 

^# The majority of these practice sales are pure accounting practices. They also include accounting practices with bookkeeping, accounting practices with financial planning, pure bookkeeping practices and specialist audit firms.

Key Takeouts

1. Practices are selling for an average of 113 cents in the dollar (metro) and 110 cents (regional)

• Every one of our thirty recent practice sales sold for higher than 100 cents in the dollar, including all six regional practices. This reinforces our regularly expressed view  that "110 cents" is the new "dollar in the dollar". 
• For metro practices the average selling price of 113 cents in the dollar is consistent with our last Market Data in October 2023 (114 cents).
• The thirty practices have sale multiples ranging from 105 cents to 125 cents in the dollar. This broad range highlights the importance for sellers of having their practice independently assessed using a robust methodology to avoid leaving money on the table.
• Specific practice characteristics around client mix, profitability, location, fees per partner and operational efficiency continue to drive value up or down as well as individual buyer characteristics.
• For larger or very profitable practices it can be more appropriate to sell based on a multiple of maintainable earnings.
• Since 2021 the average sale price multiple for metro firms has trended upwards in a narrow range of 109-114 cents in the dollar with an average of 111 cents:

2. 60% of Practices are selling in less than 90 days

• We included this data for the first time in October 2023 and it attracted a lot of positive feedback.
• The time measured is from listing date through to execution of a Heads of Agreement with the preferred buyer.
• Our latest data shows that c.60% of practices are selling in 90 days or less.  This is down from 80% as at October 2023.
• A closer comparison between the two periods reveals that time of year is a key factor in this change with the Christmas and summer holiday period causing a slow down in deals already in progress. Message to sellers: If you want a "straight -through" sale without a pause for summer, it pays to get into the market early in the financial year, ideally before the end of September.
• Three of the six regional practices are including in the 60% that took less than 90 days while the other three took an average of c. six months which is not unexpected given the small buyer pools.

3. Metro practices attract an average of 69 interested buyers per listing 

• This is slightly down on six months ago (72 buyers) but is still materially higher than pre-COVID when 40-50 buyers was closer to the mark. 
• Unsurprisingly, there is more buyer interest for metro practices than regional counterparts.
• However, regional practices are also seeing healthy levels of interest with DMY's marketing campaigns attracting an average of thirty two buyers per listing, which provides a healthy buyer pool from which to secure a buyer with a strong cultural fit.
• A consistent theme in nine of the ten practice sales with the highest level of buyer interest is that they were metro-based with fees of less $1 million. Locations included Melbourne, Sydney and Brisbane indicating that demand is equally strong across the country.
• We continue to see no direct correlation between the length of sale process and the number of buyers. One of our quicker sales this year, a regional practice interestingly, took less than sixty days yet had one of the smallest pools of buyers. When the cultural fit and commercial alignment are strong both parties get on with it!
• Average buyer numbers per metro listing have remained healthy over our last six Market Data Releases with small movements up or down from an average of 76:

3.  15% of the sale price, on average, is held in retention,

• This is marginally lower than six months ago (16%).
• 15% remains the most common retention level with eleven of the thirty practice sales at this level.
• The thirty practice sales have retentions ranging from 0% up to 25%. This broad range reinforces the need for both sellers and buyers to focus on the specific risk profile of the fees being sold/acquired, and the transition role of the Vendor in supporting client retention.
• Pragmatic sellers with higher risk client portfolios need to be flexible while sellers with less risky books, or mitigating factors, can secure a lower retention
• Conversely, smart buyers, once they identify a strong cultural fit with a seller and a reduced transition risk, use retention as an effective negotiating tool to differentiate from the competition.
• One year remains the default period for retention with only one of the thirty practices having a retention of two years. This is consistent with the previous period and buyers who insist on a high, multi-year retention without supporting data and logic continue to miss out.
• The average market level retention has remained consistent around an average of 15% since 2021:

Detailed Data for Thirty Recent Practice Sales

The supporting detailed data for our May 2024 Market Data release is provided below:

Finding 1: An average 113 cents in the dollar selling price (metro) and 110 cents (regional)

Note: Practice Sales are ranked in ascending order in each graph ie Listing #1 above is not necessarily the same as Listing  #1 in other depictions.

Finding 2: An average 69 buyers per metro listing

Note:Practice Sales are ranked in ascending order in each graph ie Listing #1 above is not necessarily the same as Listing #1 in other depictions.

Finding 3: An average 15% of sale price held in retention

Note:Practice Sales are ranked in ascending order in each graph ie Listing #1 above is not necessarily the same as Listing #1 in other depictions.
Only 28 listings are featured as two were subject to an alternative structure.

The Wrap

For sellers… buyer demand, selling prices and time to sell all remain healthy.  And we see no sign of this changing in the near future. If you have a good quality practice in a good location you should feel confident of achieving a successful sale within 90 days (or longer if selling over the Christmas period) with a strong commercial outcome and a buyer who is a suitable fit for your clients and your team. There is no room for complacency though or assuming the successful sale of your practice sale is easy to achieve on your own. Buyers will walk away if they consider you difficult to deal with or unrealistic in your expectations.  All of the positive results above have been achieved by practice owners who have chosen to engage DMY for our track record, unrivalled service and expert guidance.

For buyers…a clear understanding of the current market is critical. We regularly see buyers miss out on opportunities, for example, because they insist multi-year retentions are "standard". If you look at the data, they are not. Patience, empathy and flexibility also remain key. Buyers need to have a strong cultural fit with the seller to get a seat at the table but will also need to be attuned to the seller’s needs and flexible in their approach if they want to secure that prized acquisition.

To discuss these findings in more detail and what they mean specifically for your situation, contact DMY’s Directors below.

Mark Emney

Mobile: 0434 079 530
Email: mark@dmyassoc.com.au

Daniel Jones

Mobile: 0401 493 773
Email: daniel@dmyassoc.com.au