Market Data Release - October 2022

Selling Prices, Buyer Numbers and Retention Terms

The days of simply buying and selling dollar for dollar are behind us. Better educated buyers and sellers are increasingly focused on the specific characteristics of the practices being bought and sold to pay either considerably more or, in a smaller number of cases, considerably less. 

We see this as only positive and it is DMY's goal to lead the market in regularly publishing market data to help the ongoing education of buyers and sellers alike.  Our latest release of Market Data, relating to our twenty most recent transactions, is provided below.

Key Findings

These are our key findings for metropolitan practices:

1. They attract an average of 77 interested buyers per listing.
This is 10% lower than six months ago (86 buyers) but remains significantly higher than pre-COVID when 40-50 buyers was closer to the mark. There is no direct correlation between length of sale process and number of buyers. Smaller firms, not surprisingly, typically attract small numbers of buyers but what we are also starting to see is certain "pockets" of capital cities run hot where there is consistently strong demand from buyers. South Melbourne and Western Sydney are two such examples.

2. They sell for an average 109 cents in the dollar with a selling range of 72 -130 cents in the dollar.
The average price is unchanged from six months ago but the range has expanded at both the lower and upper end. We see the lower end as an outlier, and the upper as a strong sign of buyers starting to actively compete on price. The broad extent of the range reinforces the importance for sellers of having their practice independently appraised or valued 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 can all drive value up or down. Only one Metro practice sold $ for $ - that is rarely the answer these days! 

3. Only 14% of sale price, on average, is held in retention, with 15% being the most common amount.
This is unchanged from six months ago and has been consistent now for a year.  However, like with selling prices, the broad extent of the range from zero through to 30% reinforces the need for sellers and buyers to focus on the specific risk profile of the fees being acquired, and the transition role of the Vendor in supporting client retention. Smart buyers, once they can see a strong cultural fit with the seller, are increasingly using the retention level as an effective tool to differentiate from the competition. Conversely, buyers who insist on a high, multi-year retention without specific logic continue to miss out.

For regional practices, the results are, unsurprisingly, not as strong but still positive. Sale prices average c. 101 cents in the dollar and there are 43 interested buyers for every listing which is very healthy. Retention terms are more closely aligned to the individual risk profile of the practice’s clients than their regional location and it is interesting to see three regional practices with retention terms of just 10%.

The supporting data is provided below:

Finding 1: An average of 77 buyers for each sales listing

Note: Sales Listings 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 109 cents in the dollar selling price

Note: Sales Listings 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: Average 14% of sale price held in retention

Note: Sales Listings are ranked in ascending order in each graph ie Listing #1 above is not necessarily the same as Listing #1 in other depictions.
Only 18 listings are featured as two were subject to alternative structures.

The Wrap

For would-be sellers… the number of active buyers, selling prices and retention terms all remain healthy.  For owners of good quality practices looking to sell, the prospect of securing a positive outcome for you, your clients and your team are excellent. 

For would-be buyers…differentiation is key! Cultural fit remains a must-have but, beyond that, smart buyers are realising they need to compete on price and/or retention in order 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