Changing Demographics is Increasing the Supply of Accounting Practices for Sale.
In 2024, more baby boomers will turn 65 years old than any other year. There is currently a massive transfer of wealth underway as boomers continue to exit their small businesses. We have seen the supply of accounting practices and CPA firms available for sale increase at an alarming rate. The good news is that buyer activity has remained strong but as firm owners put their business on the market for sale they may be in for a major surprise.
While demand for firms has remained strong, the nature of the buyer pool has changed dramatically. Ten years ago, most of the buyer pool consisted of other practitioners who looked a lot like the principal selling or younger versions of themselves. This same group now represents the minority of the buyer pool, and it is much harder to find owner operator buyers.
The Buyer Pool for Accounting Practices Has Changed.
This article will look at the diverse types of buyers that we are seeing come through our brokerage firm. It is important that selling principals understand the distinct types of buyers and try to decide which kinds of buyers they are willing to entertain.
Private Equity Has Seen the Potential for ROI in the Accounting and CPA Industries.
Private Equity has entered the accounting practice space in a big way. Private Equity is an investment partnership that buys and manages firms with the hope of obtaining larger multiples upon exit. Few have a buy-and-hold strategy, and most are looking to manage, add additional revenue streams, and then sell in four to seven years.
Wealth Management Companies are also Pursuing CPA Firms and Accounting Practices.
Wealth Management see lucrative ROI potential with the traditional accounting practice and CPA space. While these may very well be interested in holding on to the firms they purchase, there is a hidden agenda. These firms are interested in getting to the wealth inside the practices. Wealth management firms are looking to provide a wide range of financial investment alternatives to high-net-worth clients who currently reside as tax clients or accounting clients within the firm.
Aggregators See Arbitrage Opportunities in the Accounting Practice and CPA Firm Industries.
Aggregators buy many small practices and take advantage of the way these trade on the open market. Small accounting practices trade using revenue multiples which equate to a two multiple on cash flow. Much larger multiples can be obtained by selling a larger book of business to Private Equity. They may purchase twenty, half a million-dollar firms over a period of years and then sell a 10-million-dollar book to Private Equity for a much larger multiple.
Strategic Buyers See Value in Practice Acquisitions by Cross-Selling Traditional Tax Clients.
Wealth Management companies are strategic buyers but there are many other kinds of firms that see value in the blending of their products and services. Insurance companies, hosting companies, law firms are all examples of companies who have different product lines and see opportunities and value creation by combining multiple product lines.
Owner Operators/Traditional CPAs are Now One of the Smaller Groups within the Buyer Pool.
Ten years ago, existing firms trying to grow though acquisition or buyers exiting an existing employee relationship with a firm and entering entrepreneurship were the bulk of the pool. Now they make up one of the smallest segments in the buyer pool.
Accounting Practice Sellers Need to Know Those to Whom They are Selling.
We are not implying that any one of these buyers is necessarily bad. What we are saying is that as a seller, you need to know those to whom you are considering. Different buyers employ different strategies for purchase because their ultimate goals are different. Each of these have different purchase metrics they are considering and different buying patterns that you should understand before entering a relationship with them. Sellers typically want to sell to someone that looks a lot like them or a younger version of themselves. Do not let the “lure” of a quick sale to the wrong buyer override what you really want.
Berkshire Business Sales and Acquisitions specializes in the sale of accounting practices and CPA firms. We represent the seller in almost all transactions we complete, and our fiduciary responsibility is to the seller. We have hundreds of transactions under our belt and have mastered “fishing” and “catching” the buyer that you desire. If you want more information or you want to discuss selling now, you can also call Ryan Gipple directly at 602-614-3583.
