There are also other factors that are considered when valuing an IFA business.
Mr Dunning points out that many acquirers assess the quality of ongoing revenue streams before committing to purchase an IFA.
“Most acquirers will want to assess the quality of ongoing revenue streams – this can relate to how likely the client is to stay with the business post sale and the terms of engagement.”
He adds: “Acquirers will often want to assess whether costs can be reduced so they can increase profitability within their own model”.
Mr Dyer says: “Other contractual terms can be vitally important in understanding the attractiveness of one offer versus another.
But Mr Gallacher stresses the biggest challenge for IFA firms lies not necessarily undervaluing their business but in sellers lowering their initial offer price at a later stage.
He says: “Perhaps the biggest risk would be the selling firm exposing itself to the ‘bid and chip’.”
Mr Gallacher defines this as the purchasing firm offers a high valuation but then, as the process continues, and with the seller committed to selling their firm “the purchaser proceeds to ‘chip away’ at the valuation for a variety of reasons”.
He adds: “The end result being that the selling IFA receives a much lower sale price than they were originally ‘offered’.”
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