What is Your Business Really Worth?

Alan Kenyon

Kenyon Prendeville

24th November 2006

Agenda

• Kenyon Prendeville’s Experience

• Valuation methodology

• Market pricing

• Key drivers for business value

• Current market

• Buyers – want/challenges

• Sellers – want/why deals fail & key success factors

• Current & future issues

• Future for buyers & sellers

• Questions

Kenyon Prendeville’s Experience

• 57 transactions

• $3.8 billion FUM

• Business value $65 million

• Averaged 35% growth in gross revenue 12 month post settlement

• 98% client retention

Valuation Methodology

Multiples:

• Financial Planning: 2 to 4 times recurring revenue

• Risk: 2.5 to 3.25 times renewals

• Accounting: 0.65 to 1 times fees

• General Insurance: 1.25 to 1.65 times fees

• Mortgage: 1.8 to 2.5 times trails

• E.B.I.T: 4 to 8 times• N.P.A.T: 8 to 12 times• Maintainable Earnings

Others:• Capitalisation• Discounted cash flow

Valuation Methodology

• Recurring Revenue 49

• E.B.I.T (earnings before interest & tax) 8

Most Used Methodology

Key

Profitability of buyers business post acquisition

Why Mostly Recurring Revenue & Not E.B.I.T?

• Internal succession

• External succession

• Additional business locations

When is E.B.I.T Most Relevant?

Summary Market Pricing

• 12month average FY 2005 3.00

• 12 month average FY 2006 3.31

• 6 month average Jan – Jun 2006 3.45

• Victoria 3.22

• New South Wales 3.12

• Queensland 3.35

• South Australia 3.48

• Western Australia 3.29

(excludes internal dealer transactions)

Transparency of Business

• Client segmentation

• Client profitability

• Service & pricing segmentation

• Product segmentation

• Client relationships

Key Drivers to Business Value

• Source of Business

• Referral relationships

• Staff profile

• Practice management / efficiencies

• Business opportunities

Key Drivers to Business Value

Current Market Environment

• 1,600 registered buyers

• 20 plus enquires for every listed business

• 3 – 4 meet vendor

• Only 2 go to due diligence post indicative offers

• Post due diligence, call for binding offers

• Enter heads of agreement

• Contract of sale

HIGHLY COMPETITIVE SELLERS MARKET

• Renovators delight

• Platformed and efficient

• Cultural fit – business opportunity

Types of Buyers

What Buyers Want

• Cross selling opportunities

• Business scale (growth)

• Economies of scale (admin)

• Platform migration

• Free cash flow after financing costs

• Profile own business

• Demonstrate prepared

• Initial meeting

- Agenda – past, present, future of each party

Last chance for first impression

Challenges For Buyers

Challenges For Buyers (Journey)

• First meeting

• Indicative offer

• Binding offer

• Sales contract

• Integration

What Sellers Want

• Transparency of buyers business/history

• Confidence – re: stakeholders – clients, staff, family

• Confidence can finance

• Business to go to next stage

• Open and honest communication

• Commitment

Why Deals Fail

• Cultural misalignment

• Unrealistic expectations

• Lack of preparation

• Owners negotiate

• Intimidation

• Timeframes

• Poor communication

• Finance

• No professional help

Key Success Factors

• Develop a strategy

• Preparation

• Realistic expectations

• Business as usual

• Flexibility/lateral solutions

• Finance in place

• Negotiable/non negotiable

• Legal advice at conclusion

• Future vision

• Professional help

• Conflict of interest

• Talent shortage

• Dealer relevance

• Westpoint

• Industry funds competitive position

• Succession

Current Issues

• Business values EBIT orientated?

• New brand competitors (Virgin, Myers, Wizard)

• Increased compliance

• Adviser margin squeeze?

• IMA’s widely accepted by HNW’s

• Advice fees not linked to FUM but service?

Future Issues

What Does The Future Hold Buyers/Sellers?

If 1 in 2 owners will exit in 3 to 5 years?

• Will the number of buyers decrease?

• Will this lead to more sellers than buyers?

• Will this mean lower prices?

• Will future valuations focus on profit not recurring revenue?

• Growth industry

• Consumers need for FP increasing

• Boutiques are moving to second tier dealer groups and forming breakaways

• IDGR’s supporting advisers to acquire businesses

• Industry change from product to advice model

• Growing number of younger, ambitious advisers

What Does The Future Hold Buyers/Sellers?

Summary

You don’t buy, sell or merge your business everyday, you only get one chance

• Get professional assistance

• Cultural “fit” and business opportunities are for both parties critical

• Success or otherwise will be determined 12 months post transaction

• Stay on track

Questions