Rising demand for risk businesses fuels higher prices

According to Radar Results’ latest data, financial advice businesses specialising in risk insurance are selling for up to $1.5 million as demand exceeds supply.

Namely, the data showed that price multiples on risk insurance clients are traditionally 2.2 times annualised renewable commission and as high as 2.7 times depending on the average client age.

The age range that is most favoured is between 35–55 years old, and the size of the business’ annual recurring revenue is $500,000–$750,000.

The younger the risk clients, the higher the multiple paid by the buyers, Radar Results said.

“This represents a purchase price between $1.35 million to $1.5 million based on the current price multiples of three times and on the annual recurring revenue of $500,000,” the firm explained.

It added that Radar Results’ buyers are currently requesting significantly higher annual fees, with some demanding as much as $3 million per year.

“These risk books are harder to get but not impossible, as smaller companies are merging with larger ones. Price multiples on risk-insurance books are expected to increase from here, insulated from stock market falls”.

The firm also forecasted price multiples would rise for accounting practices in the next several years.

“It is simply a matter of supply and demand, with fewer sellers on the market. The traditional size business sought after by accounting firms has fees of $1–$2 million per year,” it said.

Late last year, research from Adviser Ratings showed that the pure risk segment had dropped by 67 per cent in less than a year, while the volume of “high-risk” advisers halved.

“There are now 225 advisers handling a quarter of all in force in Australia — averaging $4 million per adviser,” Adviser Ratings said at the time.

Meanwhile, the firm found that with under 16,000 advisers currently operating in Australia, 77 per cent are now writing little to no risk, compared with 60 per cent a year earlier.