How a valuation multiple becomes a price
The same multiple can produce different amounts of money depending on what it is applied to, when it is paid and what conditions attach.
The same multiple can produce different amounts of money depending on what it is applied to, when it is paid and what conditions attach.
An adviser who hears the multiple a friend received on selling may apply it to their own recurring income. That figure is likely to shape their expectations for the next two years.
The multiple alone does not tell them what the friend was paid.
What it is a multiple of. Recurring income? All income? Sustainable recurring income after the buyer strips out the fees they judge will not persist? The third is often materially smaller than the first, and buyers use the third.
How much is paid when. A headline figure with sixty per cent paid up front and the rest over three years, dependent on retention, is worth less than the same figure paid at completion. Both are described as the same multiple.
What the deferred part depends on. Conditions based on client retention are reasonable. Conditions on retention you cannot influence, because you have left and someone else is running the relationships, carry more risk for you. Ask who controls the conditions attached to your own money.
What you have warranted. The warranties and indemnities you give, their duration and their cap, can leave you with a contingent liability for years after a good price. Use a solicitor who specialises in these transactions.
For each offer, ask what will arrive in your bank account, on what dates, and what has to be true for each payment to happen.
Write the answers out as a table. Compare the offers on their full terms. Two offers that look a tenth apart at the headline can change order once the timing and conditions are set out.
Each of these terms decides how risk is shared, and the side with fewer alternatives takes more of it. Settling the basis of a future transaction while you still have every alternative open puts you on the stronger side.
Who is buying, how the price is set, what happens if you decline, what your clients experience, and the timing of a network’s internal succession route.
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The three meetings of a handover year and what each one is for.
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The premium is the insurance market’s price for the risk in your back book. It also shows each year how a buyer is likely to view your firm.
Read itSteven Bates, Director of Advisory at Equity & General, takes the first call with every adviser. Ring him on 020 8396 0486 or send a short note about your firm.