Has the arse fallen out of the acquisitions market?
Monday was my first day back after a week in the USA and as the day evolved I became more concerned at some of the news reported by clients and contacts trying to complete the sale of their practices:
Multiples for associate-led practives down from 8.5 to as low as 5.5 x EBITDA;
Upfront cash payments down from 75% to 50%;
Earn outs still at 5 years but.....
Annual uplifts at 8% per annum compound.
After the "merger" news in the early Autumn, I predicted overall goodwill values down by 25% before the end of year - it seems to have happened already.
Add to all of this the fact that independent associates looking to buy their first practice are either walking away from the deal or reducing their offer by a similar percentage, to accommodate (at the vendor's expense) their increasing cost of borrowing.
It's ll looking like a bit of car crash for those expecting to sell by the end of this year..
I'm now involved in over half a dozen conversations in which I'm asking my clients whether they want to take the reduced terms or refuse to swallow the pill and prepare to work for another 5 to 8 years and wait for "The Draper Wave" to complete a cycle.
It's not good news if you are in distress sale - i.e. you have good reason for wanting to cash in your chips, be that retirement, financial, compliance, HR, NHS or any other form of distress.
However, if you are not chasing a distress sale, there is an increasing argument for staying on, maximising your profits and waiting.
Each client's circumstances are unique - and a lot of my Zoom time is being invested in this conversation.
I'm sure there are micro-corporates and independent valuers who will want to say that the market is as buoyant as ever - I'm not going to argue that owners want to exit - but we shall see whether the deal flow slows down over the coming weeks.