Survey finds 60% of consulting business owners looking to sell in next 3 years as valuations soar

Gunner & Co., the UK’s leading M&A brokerage and advisory firm, found that 60% of financial planning firm owners surveyed plan to exit the industry within the next 3 years. This was just one of the highlights of their annual survey of succession planning in the consulting profession.

It comes at a time when company valuations have jumped significantly, with companies regularly selling for more than 4 times their recurring revenue, compared to an average of 3.4 times in 2021, according to Gunner & Co deal tracking data. .

Activity has steadily grown in the space, with a diversification of the buying market leading to an increase in the value of transactions and the opening of the market to a wider range of buyers, which in turn increases the momentum for sellers to join the M&A market.

Unsurprisingly, 61% of respondents cited retirement as the main driver of approaching a sale, but selling a business a number of years before retirement is becoming more popular with 38% of respondents saying that they are driven by the sustainability of their strategic plan – rising from 34% in 2021, either in the form of longer-term succession planning leading into retirement (14%), realizing capital to reduce risk (17%) and, to a lesser extent, selling all or part of the business to open the door to in-house investment and future growth.

“With new buyers offering partial equity purchases, growth financing and greater autonomy for sell activity, the M&A market is moving away from the consolidator dominance we saw a while ago. a few years.” Commented Louise Jeffreys, chief executive of Gunner & Co.

Succession planning is an important part of strategic planning, according to 76% of respondents, suggesting that many companies in the sector are approaching the end of their natural life cycle. Encouragingly, according to Gunner & Co.’s analysis, total business volume only declined by 0.9% from 2016 to 2021, so while exit planning is prevalent, it doesn’t does not always result in a net decrease in business, thus avoiding a service deficit. .

Pure and simple external selling is the preferred route considered by business leaders responding to the survey, 70% preferring it to a management buy-out (11%).

“With the growth in the number of new inbound buyers and start-ups, we may not see a significant decrease in the number of companies for a few years. That said, I suspect that over a 5+ year horizon, fewer large companies are likely to dominate as smaller companies are either squeezed out due to operational pressures or leave due to retirement and mid-size acquirers merge to achieve scale.

“Mergers, management buyouts and management buyouts are notoriously difficult to execute, although they are often a preference for business owners. While they can offer the business a level of continuity that a consolidator type buyer cannot, they face challenges in identifying the right successor(s), agreeing on value and to fundraising. Add Louise.

When asked what type of buyer business owners would consider selling to, the majority preferred smaller scale buyers, with 63% saying they would consider regional buyers and 37% a small local option (down from 55% in 2021 ) among others, compared to 51%% open to considering a consolidator (compared to 43%), and 30% a start-up consolidator.

“The challenge with small-scale buyers is their experience in closing deals and their ability to pay – these factors should not be overlooked” advised Louise.

When a business is independent, this status is widely preferred by a buyer – with only 15% of respondents suggesting they would sell to a restricted buyer.

Regardless of independence, when asked which were the two most important factors when evaluating a potential deal, price was overwhelmingly cited as the most important factor (62% of respondents), followed by an alignment of the client’s proposal (48%). Least important, with only 2% choosing it as one of 2 factors, was customer billing structures.

“Given the constant upward trend in multiples over the past 3 years, professional sellers are increasingly satisfied with the offers on the market, further fueling the motivations to sell” concludes Louisa.

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