Are there bargains to be had?

We often see opportunistic buyers in the market place who are looking to buy because they perceive there are ‘bargains to be had’ in the current climate. These buyers usually have a fixed view of the price they are prepared to pay and aggressively try to talk the value of a potential acquisition down. This was particularly noticeable post GFC.

Their feedback on potential acquisitions may be ‘The files will need to be all updated ‘, ‘the systems are not the best ‘, ‘you won’t be able to do that post FoFA ‘, ‘we don’t want any of the staff‘, and on and on it goes.

Needless to say these same people are still in the market looking for the elusive ‘bargain’. These approaches are much more appropriate in manufacturing or product businesses but certainly don’t cut it in professional services businesses which are based on relationships and trust. How do you put a price or a discount on integrity?

In my experience the two key elements that matter in a sale are:

Cultural fit. Do the buyer and seller have the same approach to client service, fees, value proposition, and product or service offering, such as self-managed superannuation, direct equities etc.?
Business opportunity. If I were to buy this business what opportunities will it provide? Scale benefits, added services i.e. accounting, risk, mortgages. Does it provide me with additional skilled people, sources of prospects and other opportunities?

If you get these two key elements right, the buyer and seller will find a middle ground and agree on a realistic price and sale terms. If, as a buyer, you think you’ve pushed the sale price down you might have just bought a whole host of poorly serviced, disenchanted clients.

There is no easy way to value the time and cost to add a new client, retaining them as satisfied clients over a number of years. However, there are agreed methodologies and strategies for arriving at a fair market price for a business. There are no real ‘bargains to be had’ when you are buying a professional services business that relies on ongoing client relationships.