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| Tynan reports M&A increase in accounting firms – ‘valuation shock’ hinders financial advisersBy: Connect Financial Service Brokers In contrast to accountants, the activity amongst owners of financial advisory practices has slowed and Tynan attributes this to ‘valuation shock’ with many holding on in the vain hope their businesses will return to pre GFC and FoFA values. Commenting further on his experience with accountants, Tynan points to a number of key factors that are driving this activity and the most obvious being the age demographic of practitioners and owners. “Succession planning has always been an essential component of any business strategy, but the subject has become a ‘red hot’ topic for discussion and concern as the wave of baby boomer accountants seeking to retire increases”. “With the expected wave of baby boomer accountants to exit their businesses and retire – together with new structural and operational pressures – many are taking steps now to restructure, streamline processes, source new income streams, utilise resources more effectively, optimise values, identify potential successors, etc and hence the increase in enquiries received by Connect”. One person accounting firms are feeling the pressure of change the most with reduced compliance work impacting revenues. The move by the ATO to eliminate individual income tax returns will be another blow for these businesses. Tynan also pointed to the administration / compliance for small business is putting pressure on accountants / tax agents for little rewards. Added to this is the increase in training requirements for small practitioners and those required to educate and update clients of legislative and taxation changes. Midsized accounting firms have not been immune from change with the big four accounting firms pushing down into this sector seeking growth and revenue opportunities. As a result, accountants are responding by shedding jobs and turning to automation and outsourcing in order to address the operational burden on their cost base. Tynan continued, “In the past succession planning for small accounting firms was relatively easy. When a partner wanted to retire the firm would look to finance a member of the team (normally someone that had been with the business for an extended period of time) into the partnership. That is not the case today with new entrants to the profession reluctant to entertain or consider partnership approaches”. “The underlying factors that are influencing the Gen X and Y accounting professionals are their concerns about valuations, lack of cash flow, not wanting to be equity owners and other lifestyle priorities. In addition, they already have too much debt in the house, car, HECS, etc and are basically more comfortable receiving a salary leaving the stress of running a business in the hands of practice owners”. Prudent accountants are responding to these issues by seeking to amalgamate with fellow practitioners. With time still on their side, baby boomers are being pro active and reviewing their exit options and implementing plans to optimize exit potential. Paul Tynan concluded by encouraging principals of financial advisory practices to follow the example of the accounting sector and consider a number of decisive restructuring options in order to capitalize on the opportunities of the post FoFA era. For those advisers that simply want to exit the industry now or in the very near future will need to review their valuation expectations in line with current market conditions. ENDS Issued by Connect Financial Service Brokers www.connectfsb.com.au Media enquiries Mr. Joe Perri Joe Perri & Associates Pty Ltd Tel/fax: +61 3 9324 0362 Mobile: +61 412 112 545 Email: jperri@ End
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